1 book value versus market value filer manufacturing has 83, Ask an Expert

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1. Book Value versus Market Value; Filer Manufacturing has 8.3 million shares of common stock outstanding. The current share price is $53, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million and a coupon rate of 7 percent and sells for 108.3 percent of par. The second issue has a face value of $60 million and a coupon rate of 7.5 percent and sells for 108.9 percent of par. The first issue matures in 8 years, the second in 27 years.

What are the company’s capital structure weights on a book value basis?

What are the company’s capital structure weights on a market value basis?

Which are more relevant, the book or market value weights? Why?

2. Calculating the WACC; In the previous problem, suppose the company’s stock has a beta of 1.15. The risk-free rate is 3.7 percent, and the market risk premium is 7 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35%. What is the company’s WACC?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92052563

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