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 $85 million, has a coupon of 10 percent, and sells for 96 percent of par. The second issue has a face value of $65 million, has a coupon of 11 percent, and sells for 109 percent of par. The first issue matures in 25 years, the second in 9 years.

What are Filer's capital structure weights on a book value basis?

What are Filer's capital structure weights on a market value basis?

What are Filer's capital structure weights on a book value basis?

What are Filer's capital structure weights on a market value basis?

Explanation / Answer

Book value basis

Equity is 9 million × 6 = 54 million

Debt is 150 million

Weight equity 54/204 = 26.47%

Weight of debt 150/204 =73.53

By market value basis

Equity is 9 million × 75 = 675 million

Debt is 81.6 million + 70.85 million = 152.45 million

Equity weight is 675/827.45 = 81.58%

Debt is 152.45/827.45 = 18.42%

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