Al Ain Manufacturing has 7.5 million shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Al Ain Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $60 million and a 7 percent coupon and sells for 93 percent of par. The second issue has a face value of $50 million and a 6.5 percent coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Required: What are Al Ain’s capital structure weights on a book value basis? What are Al Ain’s capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why?

Al Ain Manufacturing has 7.5 million shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Al Ain Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $60 million and a 7 percent coupon and sells for 93 percent of par. The second issue has a face value of $50 million and a 6.5 percent coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Required: What are Al Ain’s capital structure weights on a book value basis? What are Al Ain’s capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 14P

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