Filer Manufacturing has 4 million shares of common stock outstanding. The curren
ID: 2754641 • 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. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $60 million, has a coupon of 5 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, has 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 Filer's capital structure weights on a book value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616)) Equity / Value 16.7 Debt / Value 100 b. What are Filer's capital structure weights on a market value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616)) Equity / Value 73.96 Debt / Value 99.59
Explanation / Answer
a. What are Filer's capital structure weights on a book value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
Book Value of Equity = book value per share*No of common stock outstanding
Book Value of Equity = 5*4
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 + 40
Book Value of Debt = $ 100 Million
Equity / Value = Equity/(Equity + Debt)
Equity / Value = 20/(20+100)
Equity / Value = 0.1667
Debt / Value = Debt/(Equity + Debt)
Debt / Value = 100/(20+100)
Debt / Value = 0.8333
b. What are Filer's capital structure weights on a market value basis? (Do not round intermediate calculations and round your final answers to 4 decimal places. (e.g., 32.1616))
Market Value of Equity = Market value per share*No of common stock outstanding
Market Value of Equity = 70*4
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*95% + 40*104%
Market Value of Debt = $ 98.60 Million
Equity / Value = Equity/(Equity + Debt)
Equity / Value = 280/(280+98.60)
Equity / Value = 0.7396
Debt / Value = Debt/(Equity + Debt)
Debt / Value = 98.6/(280+98.6)
Debt / Value = 0.2604
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