Filer Manufacturing has 9.6 million shares of common stock outstanding. The curr
ID: 2728857 • Letter: F
Question
Filer Manufacturing has 9.6 million shares of common stock outstanding. The current share price is $56, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $86 million, has a 6 percent coupon, and sells for 91 percent of par. The second issue has a face value of $67.2 million, has a 6 percent coupon, and sells for 95.3 percent of par. The first issue matures in 10 years, the second in 7 years.
Requirement 1:
(a) What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.)
(b) What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.)
Requirement 2:
(a) What is Filer's capital structure weight of equity on a market value basis? (Do not round your intermediate calculations.)
(b) What is Filer's capital structure weight of debt on a market value basis? (Do not round your intermediate calculations.)
Explanation / Answer
a.Filer’s capital structure weights on a book value basis?
The book value of equity is the book value per share times the number of shares outstanding, and the book value of debt is the face value of the firm’s bonds:
Be=$5 per share * 9600000 shares outstanding=$48000000
BVd=86000000+76200000=$162200000
The book value of Filer is the sum of the book value of equity and book value of debt:
BV=48000000+162200000=$210200000
The book value weights of equity and debt are:
Book value of equity=Book value of equity/Book value of filler
Book value of equity=48,000,000/2102,000,000=0.022
Book value of debt=1622,000,000/2102,000,000=0.77
b.Filer’s capital structure weights on a market value basis?
The market value of equity is the market value per share times the number of shares outstanding, and the market value of debt is the face value of the firm’s bonds times the market value percent of par value:
Market value of equity= 56* 96,000,00=$537,600,000
Market value of debt=86000000*0.91 + 67200000*.953=$142,301,600
The market value of Filer is the sum of the market value of equity and market value of debt:
Market value of Filer=$537,600,000+$142,301,600=679901600
The market value weights of equity and debt are:
Market value of equity=Market value of equity/Market value of firm=537600000/679901600=.7907
Market value of debt=Market value of debt/Market value of firm=142301600/679901600=.2092
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