Filer Manufacturing has 7.3 million shares of common stock outstanding. The curr

Question

Filer Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $68 million and a coupon rate of 6 percent and sells for 109.3 percent of par. The second issue has a face value of $58 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years.

The company

Filer Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $68 million and a coupon rate of 6 percent and sells for 109.3 percent of par. The second issue has a face value of $58 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years.

The company

Explanation / Answer

total capital= 2,900,000+68,000,000+58,000,000 (equity capital+ bond 1 cap + bond 2 capital)=128,900,000

weight of equity= 2,900,000/128,900,000=2.25%

weith of bond 1 capital= 68,000,000/128,900,000= 52.75%

weith of bond 2 capital= 58,000,000/128,900,000= 45%

cost of equity= 8.1%, cost of debt 1 cap is = 8(1-0.34)= 5.28%

and cost of debt 2 capital = 6(1-0.34)= 3.96%

now its WACC

= 2.25(8.1)+52.75(5.28)+45(3.98)

= 0.18225+2.7852+1.791

=4.758%

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