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liq [111]
2 years ago
13

Masterson, Inc., has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share

is $10. The company also has two bond issues outstanding. The first bond issue has a face value of $120 million, has a coupon rate of 4 percent, and sells for 92 percent of par. The second issue has a face value of $105 million, has a coupon rate of 3 percent, and sells for 104 percent of par. The first issue matures in 22 years, the second in 7 years. Both bonds make semiannual coupon payments.
Required:
a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
b. What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.)
c. Which are more relevant, the book or market value weights?
Business
1 answer:
Andreas93 [3]2 years ago
3 0

Answer and Explanation:

The computation is shown below;

a. On book value basis

<u>Particulars       Book value     Weight</u>

Debt                   $70               0.2373

                       (7 × $10)

common stock   $225            0.7627

                  ($120 + $105)

Total                    $295

b. On market value basis

<u>Particulars       Market value     Weight</u>

Debt                   $553              0.7158

         (7 × $79)

common stock   $219.60          0.2842

           (120 × 0.92 + 105 × 1.04)

Total                    $772.60

c. The market value weight is more relevant

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Answer:

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Explanation:

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Answer:

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The reason for this is because that consumer choose to<u> purchase another product that he/she couldn't afford</u> before having an increase in income.

This 'other' product tend to be more expensive and higher in quality compared to the previous one. This is why the word 'inferior' is attached to the previous product.

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6 0
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