Filer Manufacturing has 4 million shares of common stock outstanding. The curren

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 of $60 million and a coupon rate of 5 percent and sells for 95 percent of par. The second issue has a face value of $40 million and a coupon rate of 6 percent and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years.

What are the company’s capital structure weights on a book value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

What are the company’s capital structure weights on a market value basis? (Do not round intermediate calculations. Round your answers to 4 decimal places (e.g., 32.1616).)

Which are more relevant, the book or market value weights?

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 of $60 million and a coupon rate of 5 percent and sells for 95 percent of par. The second issue has a face value of $40 million and a coupon rate of 6 percent and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years.

Explanation / Answer

a. Capital structure weights on book value basis:

b. Capital structure weights on maket value basis:

c. Market value weights are more relevant.

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