Answer:
(a). Book value of equity is (6,000,000 * $5) = $30,000,000
Book value of debts ($145,000,000 + $130,000,000) = $275,000,000
Total book value of the corporation ($30,000,000 + $275,000,000) = $305,000,000
Weight equity ($30,000,000 / $305,000,000) = 0.0984
Weight debts ($275000000 / $305000000) = 0.9016
Equity / Value = 0.0984
Debt / Value = 0.9016
(b). Market value of equity is (6,000,000 * $84) = $504,000,000
Market value of debts ($145,000,000 * 0.95) + ($130,000,000 * 1.07)
= ($137,750,000 + $139,100,000)
= $276,850,000
Total market value of the corporation ($504,000,000 + $276,850,000) = $780,850,000
Weight equity ($504,000,000 / $780,850,000) = 0.6455
Weight debts ($276850000 / $780850000) = 0.3545
Equity / Value = 0.6455
Debt / Value = 0.3545
(C). Answer is Market value . As we know that market value weights are more relevant because such weights are on the basis of the prevailing market prices, hence such weights will show more accurate picture of the capital structure.
