Filer Manufacturing has 4 million shares of common stock outstanding. The curren
ID: 2745037 • Letter: F
Question
Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $60 million, a coupon of 5 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years. a. What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value __________
Debt / Value ___________
b. What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.)
Equity / Value ____________
Debt / Value ______________
Explanation / Answer
a. Book Value Basis.
Book Value of Equity = book value per share*No of common stock outstanding
Book Value of Equity = $5 per share * 4 million shares
Book Value of Equity = $ 20 Million
Book Value of Debt = Book Value of 1st Issue + Book Value of 2nd Issue
Book Value of Debt = 60 million + 40 million
Book Value of Debt = $ 100 Million
Equity / Value = Equity/(Equity + Debt)
Equity / Value = 20 million /(20 M+100 M)
Equity / Value = 0.1667
Debt / Value = Debt/(Equity + Debt)
Debt / Value = 100 M /(20M+100M)
Debt / Value = 0.8333
b. Market value Basis.
Market Value of Equity = Market value per share*No of common stock outstanding
Market Value of Equity = $70 per share * 4 Million shares
Market Value of Equity = $ 280 Million
Market Value of Debt = Market Value of 1st Issue + Market Value of 2nd Issue
Market Value of Debt = 60 M *95% + 40 M*104%
Market Value of Debt = $ 98.60 Million
Equity / Value = Equity/(Equity + Debt)
Equity / Value = 280M/(280M+98.60M)
Equity / Value = 0.7396
Debt / Value = Debt/(Equity + Debt)
Debt / Value = 98.6M/(280M+98.6M)
Debt / Value = 0.2604
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