Filer Manufacturing has 6 million shares of common stock outstanding. The curren
ID: 450376 • Letter: F
Question
Filer Manufacturing has 6 million shares of common stock outstanding. The current share price is $72. and the book value per share is $7. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $70 million, has a coupon of 7 percent, and sells for 97 percent of par. The second issue has a face value of $50 million, has a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 6 years. 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)) 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)) Which are more relevant? Market valueExplanation / Answer
a) What are Filer’s capital structure weights on a book value basis?
Book value of equity(BVE) = Book value per share * no of shares outstanding
BVE= $7* 60,00,000
= 4,20,00,000
Book value of the debt (BVD)= Face value of the firms bonds
BVD= $70,000,000 + $50,000,000 = $120,000,000
Book value of filter(VF) = Book value of equity + book value of debt
V = 42,000,000 + $120,000,000
= $162,000,000
Book value weights of equty = Equity/Value = BVE/V = 42,000,000/162,000,000
= 0.2592
Book value weights of debt = Debt/Value = BVD / V= 120,000,000/162,000,000
= 0.7407
B) What are Filer’s capital structure weights on a market value basis?
Market value of equity(MVE) = Market value per share * no of shares outstanding
MVE= $72* 60,00,000
= 432,000,000
Market value of the debt (MVD)= Face value of the firms bonds * market value percent of par value
MVD= $70,000,000 * 0.97 + $50,000,000*1.06
= 67,900,000 + 53,000,000 = 120,900,000
Book value of filter(VF) = Book value of equity + book value of debt
V = 432,000,000 + $120,900,000
= 553,900,000
Market value weights of equty = Equity/Value = MVE/V = 432,000,000/ 553,900,000
= 0.7799
Market value weights of debt = Debt/Value = MVD / V= 120,900,000/ 553,900,000
= 0.2182
c) Which are more relevant?
The market values are more relevant
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