Question

Filer Manufacturing has 7 million shares of common stock outstanding. The current share price is $86, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $70 million, a coupon of 9 percent, and sells for 96 percent of par. The second issue has a face value of $45 million, a coupon of 10 percent, and sells for 104 percent of par. The first issue matures in 24 years, the second in 6 years. a. What are the company's capital structure weights on a book value basis?

Answer 1

Debt weight is 0.77

Equity is 0.23

Step-by-step explanation:

The equity has a book value of 7 million *$5=$35,000,000

The first debit has a book value of $70 million

The second debt has a book value of $45 million

Total debt ($70m+$45m) =$115,00,000

Total equity and debt $150,000,000

Debt/value=$115,000,000/$150,000,000=0.77

Equity/value=$35,000,000/$150,000,000=0.23

The equity weight is value of equity divided by total capital structure value

The debt weight is value of debt divided by total capital structure value