Filer Manufacturing has 8.6 million shares of common stock outstanding. The curr
ID: 2718375 • Letter: F
Question
Filer Manufacturing has 8.6 million shares of common stock outstanding. The current share price is $58, and the book value per share is $4. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $69 million, has a 8 percent coupon, and sells for 93 percent of par. The second issue has a face value of $48.16 million, has a 8 percent coupon, and sells for 96 percent of par. The first issue matures in 10 years, the second in 6 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? (Do not round your intermediate calculations.)
Requirement 1:Explanation / Answer
Answer (requirement 1-a)
Capital structure weight of equity on book value basis = 0.227
Answer (requirement 1-b)
Capital structure weight of debt on a book value basis = 0.773
Answer (requirement 2-a)
Capital structure weight of equity on a market value basis = 0.8188
Answer (requirement 2-b)
Capital structure weight of debt on a market value basis = 0.1812
Total Number of Shares outstanding = 8.6 Million
Current Market Price = $ 58
Current Book Value = $ 4
Total Book Value of Equity = No of shares outstanding * Book value per share
= 8.6 Million * $ 4 = $ 34.4 Million
Total Market Value of Equity = No of shares outstanding * current market price
= 8.6 Million * $ 58 = $ 498.8 Million
First bond issue
Face value = $ 69 Million
Current Market price = 93% of par
Market Value of First bond issue = $ 69 Million * 93% = $ 64.17 Million
Second Bond issue
Face value = $ 48.16 Million
Current market price = 96% of par
Market Value of second bond issue = $ 48.16 Million * 96% = $ 46.2336 Million
Total face value of Bonds = $ 69 Million + $ 48.16 Million = $ 117.16 Million
Total market value of bonds = $ 64.17 Million + $ 46.2336 Million = $ 110.4036 Million
Total Book Value of the firm = Book Value of Equity + Book Value of Debt
= $ 34.4 Million + $ 117.16 Million = $ 151.56 Million
Total market value of the firm = Market value of equity + market value of debt
= $ 498.8 Million + $ 110.4036 Million = $ 609.2036 Million
Weight of equity on book value basis = Book value of equity / book value of firm
= $ 34.4 Million / $ 151.56 Million = 0.22697 or 0.227 (rounded off)
Weight of debt on a book value basis = book value of debt / book value of firm
= $ 117.16 Million/ $ 151.56 Milion = 0.7730
Weight of equity on a market value basis = Market value of equity / market value of firm
= $ 498.8 Million / $ 609.2036 Million = 0.81877 or 0.8188 (rounded off)
Weight of debt on a market value basis = Market value of debt / market value of firm
= $ 110.4036 Million / $ 609.2036 Million = 0.1812
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