Filer Manufacturing has 10 million shares of common stock outstanding. The curre
ID: 2638292 • Letter: F
Question
Filer Manufacturing has 10 million shares of common stock outstanding. The current share price is $82, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $85 million, has a coupon of 5 percent, and sells for 97 percent of par. The second issue has a face value of $55 million, has a coupon of 6 percent, and sells for 105 percent of par. The first issue matures in 20 years, the second in 9 years.
What are Filer's capital structure weights on a book value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
What are Filer's capital structure weights on a market value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
Which are more relevant?
Filer Manufacturing has 10 million shares of common stock outstanding. The current share price is $82, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $85 million, has a coupon of 5 percent, and sells for 97 percent of par. The second issue has a face value of $55 million, has a coupon of 6 percent, and sells for 105 percent of par. The first issue matures in 20 years, the second in 9 years.
Explanation / Answer
Total Market value of Equity=10*82=$820million
Total book value of Equity =10*5=$50 million
Total market value of debt=97+105=$203 million
Total Book value of debt=85+55=$140 million
a
Total book value = Total book value of Equity+ Total Book value of debt=140+50=$190mn
Equity/Value=50/190= 0.263157895
Debt/value=140/190=0.736842105
b
Total market value = Total market value of Equity+ Total market value of debt=820+203=$1023mn
Equity/Value=820/1023= 0.801564027
Debt/value=203/1023=0.198435973
C
Market value is more relevant
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