Question

Filer Manufacturing has 11.6 million shares of common stock outstanding. The current share price is $59, 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 $99 million, has a 8 percent coupon, and sells for 92 percent of par. The second issue has a face value of $81.2 million, has a 8 percent coupon, and sells for 95.5 percent of par. The first issue matures in 10 years, the second in 5 years. What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of equity on a market value basis? (Do not round your intermediate calculations.) What is Filer's capital structure weight of debt on a market value basis?

Answer 1

Answer:

a. Filer's capital structure weight of equity on a book value basis is 24%.

b. Filer's capital structure weight of debt on a book value basis is 76%.

c. Filer's capital structure weight of equity on a market value basis is 80%.

d. Filer's capital structure weight of debt on a market value basis is 20%.

Explanation:

a. What is Filer's capital structure weight of equity on a book value basis? (Do not round your intermediate calculations.)

Equity book value = Equity book value per share * Number of shares = 11,600,000 * $5 = $58,000,000

Debt book value = Debt face value = First bond face value + Second face value = $99,000,000 + $81,200,000 = $180,200,000

Total book value = $58,000,000 + $180,200,000 = $238,200,000

Book value weight of equity = Equity book value / Total book value = $58,000,000 / $238,200,000 = 0.24, or 24%

Therefore, Filer's capital structure weight of equity on a book value basis is 24%.

b. What is Filer's capital structure weight of debt on a book value basis? (Do not round your intermediate calculations.)

From part a, we have:

Debt book value = $180,200,000

Total book value = $238,200,000

Therefore, we have:

Book value weight of debt = Debt book value / Total book value = $180,200,000 / $238,200,000 = 0.76, or 76%

Therefore, Filer's capital structure weight of debt on a book value basis is 76%.

c. What is Filer's capital structure weight of equity on a market value basis? (Do not round your intermediate calculations.)

Equity market value = Current share price * Number of shares = $59 * 11,600,000 = $684,400,000

Debt market value = Bond price quote * Par value of the bond

Debt market value = First bond market value + Second bond market value = (92% * $99,000,000) + (95.5% * $81,200,000) = $168,626,000

Total market value = Equity market value + Debt market value = $684,400,000 + $168,626,000 = $853,026,000

Market value weight of equity = Equity market value / Total market value = $684,400,000 / $853,026,000 = 0.80, or 80%

Therefore, Filer's capital structure weight of equity on a market value basis is 80%.

d. What is Filer's capital structure weight of debt on a market value basis?

From part c, we have:

Debt market value = $168,626,000

Total market value = $853,026,000

Market value weight of debt = Debt market value / Total market value = $168,626,000 / $853,026,000 = 0.20, or 20%.

Therefore, Filer's capital structure weight of debt on a market value basis is 20%.