Question

Filer Manufacturing has 9 million shares of common stock outstanding. The current share price is $88, and the book value per share is $7. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $80 million, has a coupon of 5 percent, and sells for 98 percent of par. The second issue has a face value of $55 million, has a coupon of 6 percent, and sells for 106 percent of par. The first issue matures in 20 years, the second in 8 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
Debt / Value

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
Debt / Value

c.	Which are more relevant?
	Market value Book value

Answer 1

Particulars common stock first issue second issue Total Book value Book value weight amount [millions ] (amount/total) $63.00 0.3182 $80.00 0.4040 $55.00 0.2778 $198.00 Weight of equity on book value basis = Weight of debt on book value basis = 0.3182 0.6818 Particulars common stock first issue second issue Total market value Market value weight amount [millions ] (amount/total) $792.00 0.8528 $78.40 0.0844 $58.30 0.0628 $928.70 Weight of equity on market value basis = Weight of debt on market value basis = 0.8528 0.1472 1 market value