Question
Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $5. The
Filer Manufacturing has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value $60 million, a coupon of 5 percent, and sells for 95 percent of par. The second issue has a face value of $40 million, a coupon of 6 percent, and sells for 104 percent of par. The first issue matures in 20 years, the second in 4 years. I do not understand this |
a. | What are the company's capital structure weights on a book value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) |
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Equity / Value |
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Debt / Value |
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b. | What are the company's capital structure weights on a market value basis? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) |
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Equity / Value |
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Debt / Value |
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c. | Which are more relevant? | ||||
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Titan Mining Corporation has 8.5 million shares of common stock outstanding and 290,000 4 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $33 per share and has a beta of 1.25, and the bonds have 10 years to maturity and sell for 114 percent of par. The market risk premium is 7.3 percent, T-bills are yielding 6 percent, and the companys tax rate is 38 percent. |
a. | What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 32.1616.) |
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Debt |
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Equity |
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b. | If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Discount rate | % |
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