Book Value versus Market Value Filer Manufacturing has 6 million shares of commo
ID: 2761507 • Letter: B
Question
Book Value versus Market Value Filer Manufacturing has 6 million shares of common stock outstanding. The current share price is $78. and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value $65 million, has a coupon of 7 percent, and sells for 98 percent of par. The second issue has a face value of $35 million, has a coupon of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 5 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 value Book valueExplanation / Answer
Answer:b Market value of equity=6 million shares*$78=$468 million
First bond=$65 million*98%=$63.7 million
Second Bond=$35 *106%=$37.10 million
Total value=468+63.7+37.10=568.8
Equity/Value=468/568.8=0.82
Debt/Value=100.8/568.8=0.18