Filer Manufacturing has 5700000 shares of common stock outstanding. The current

Question

Filer Manufacturing has 5700000 shares of common stock outstanding. The current share price is $72.25, and the book value per share is $9.06. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $42000000, has a 0.08 coupon, matures in 18 years and sells for 88 percent of par. The second issue has a face value of $68000000, has a 0.07 coupon, matures in 6 years, and sells for 99 percent of par. What is Filer's weight of equity on a market value basis? Enter the answer with 4 decimals (e.g. 0.2345)

Explanation / Answer

The market value of equity is the share price times the number of shares, so:

MVE = 5,700,000($72.25) = $411,825,000

Using the relationship that the total market value of debt is the price quote times the par value of the bond, we find the market value of debt is:

MVD = .88($42,000,000) + .99($68,000,000) = $104,280,000

This makes the total market value of the company:

V = $411,825,000 + $104,280,000 = $516,105,000

And the market value weights of equity is:

E/V = $411,825,000 / $516,105,000 = 0.7979

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