Filer Manufacturing has 7 million shares of common stock outstanding. The curren

Question

Filer Manufacturing has 7 million shares of common stock outstanding. The current share price is $86, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $70 million, has a coupon of 9 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, has a coupon of 10 percent, and sells for 104 percent of par. The first issue matures in 24 years, the second in 6 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 7 million shares of common stock outstanding. The current share price is $86, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $70 million, has a coupon of 9 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, has a coupon of 10 percent, and sells for 104 percent of par. The first issue matures in 24 years, the second in 6 years.

Explanation / Answer

Capital Structure weights on a book value basis Particulars Number Book Value Face Value Weights Common Stock      7,000,000.00                                         5.00        35,000,000.00           0.23 First Bond Issue        70,000,000.00           0.47 Second Bond Issue        45,000,000.00           0.30      150,000,000.00           1.00 Capital Structure weights on a market value basis Particulars Number Book Value Face Value Weights Common Stock      7,000,000.00                                       86.00      602,000,000.00           4.01 First Bond Issue        67,200,000.00           0.45 Second Bond Issue        46,800,000.00           0.31      716,000,000.00           4.77 Market value are more relevant in determining the capital structure

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