Filer Manufacturing has 9 million shares of common stock outstanding. The curren

Question

Filer Manufacturing has 9 million shares of common stock outstanding. The current share price is $75, and the book value per share is $6. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a 10 percent coupon, and sells for 96 percent of par. The second issue has a face value of $65 million, has a 11 percent coupon, and sells for 109 percent of par. The first issue matures in 25 years, the second in 9 years.

  

The most recent dividend was $4.7 and the dividend growth rate is 6 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 34 percent.

  

11.53%

10.45%

9.49%

19.94%

9.97%

Filer Manufacturing has 9 million shares of common stock outstanding. The current share price is $75, and the book value per share is $6. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a 10 percent coupon, and sells for 96 percent of par. The second issue has a face value of $65 million, has a 11 percent coupon, and sells for 109 percent of par. The first issue matures in 25 years, the second in 9 years.

Explanation / Answer

WACC = 11.53%

Amount weight cost weight*cost equity                           675.00 0.8158 12.6427% 0.1031 bond 1                              81.60 0.0986 6.8994% 0.0068 bond 2                              70.85 0.0856 6.2638% 0.0054

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.