Filer Manufacturing has 11.6 million shares of common stock outstanding. The cur
ID: 2633697 • Letter: F
Question
Filer Manufacturing has 11.6 million shares of common stock outstanding. The current share price is $59, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $99 million, has a 8 percent coupon, and sells for 92 percent of par. The second issue has a face value of $81.2 million, has a 8 percent coupon, and sells for 95.5 percent of par. The first issue matures in 10 years, the second in 5 years. What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of equity on a market value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of debt on a market value basis?
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Explanation / Answer
Book value weights
Book value of equity = no of shares * book value/share = 11.6 million * 5 = $ 58 million
Book value of debt issue 1 = par value = $99 million
Book value of debt issue 2 = par value = $81.2 million
Total book value of debt = 99 + 81.2 = $ 180.2 million
Total book value of firm = 58 + 180.2 = $ 238.2 million
Weight of equity on book value basis = book value of equity / book value of firm = 58 / 238.2 = 24.35%
Weight of debt on book value basis = book value of debt / book value of firm = 180.2 / 238.2 = 75.65%
Answer: Book weight of equity = 24.35% and book weight of debt = 75.65%
Market value weights
Market value of equity = no of shares * market value/share = 11.6 million * 59 = $ 684.4 million
Market value of debt issue 1 = par value * sale discount = $99 * 92% = $ 91.08 million
Market value of debt issue 2 = par value * sale discount = $81.2 * 95.5% = $ 77.546 million
Total book value of debt = 91.08 + 77.546 = $ 168.626 million
Total book value of firm = 684.4 + 168.626 = $ 853.026 million
Weight of equity on market value basis = market value of equity / market value of firm = 684.4 / 853.026 = 80.23%
Weight of debt on market value basis = market value of debt / market value of firm = 168.626 / 853.026 = 19.77%
Answer: Market weight of equity = 80.23% and market weight of debt = 19.77%
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