Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
11th Edition
ISBN: 9780077861759
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 13, Problem 8QP
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.
- a. What arc the company’s capital structure weights on a book value basis?
- b. What arc the company’s capital structure weights on a market value basis?
- c. Which are more relevant, the book or market value weights? Why?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Pandora Manufacturing has 9.2 million shares of common stock outstanding. The current share price is $62, 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 $71.8 million and a coupon rate of 7.9 percent and sells for 107.4 percent of par. The second issue has a face value of $61.8 million and a coupon rate of 8.4 percent and sells for 110.7 percent of par. The first issue matures in 8 years, the second in 27 years.
The company’s stock has a beta of 1.2. The risk-free rate is 4 percent, and the market risk premium is 7.9 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 24 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
WACC:____%
Pandora Manufacturing has 8.7 million shares of common stock outstanding. The current
share price is $57, and the book value per share is $5. The company also has two bond
Issues outstanding. The first bond issue has a face value of $70.8 million and a coupon
rate of 7.4 percent and sells for 107.9 percent of par. The second issue has a face value
of $60.8 million and a coupon rate of 7.9 percent and sells for 109.7 percent of par. The
first issue matures in 9 years, the second in 26 years.
The company's stock has a beta of 1,3. The risk-free rate is 3.5 percent, and the market
risk premium is 7.4 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 24 percent. What is the company's WACC? (Do not round intermediate
calculations and enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
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. Filer Manufacturing 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.
a.Compute and discuss Filer's capital structure weights on a book value basis.
b. Compute and anlyse Filer's capital structure weights on a market value basis.
c. Determine either the book or market value weights is more relevant.
Chapter 13 Solutions
Corporate Finance (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13 - Project Risk If you can borrow all the money you...Ch. 13 - WACC and Taxes Why do we use an aftertax figure...Ch. 13 - SML Cost or Equity Estimation If you use the stock...Ch. 13 - SML Cost or Equity Estimation What are the...Ch. 13 - Prob. 5CQCh. 13 - Cost of Capital Suppose Tom OBedlam, president of...Ch. 13 - Company Risk versus Project Risk Both Dow Chemical...Ch. 13 - Prob. 8CQCh. 13 - Leverage Consider a levered firms projects that...Ch. 13 - Beta What factors determine the beta of a stock?...
Ch. 13 - Calculating Cost of Equity The Dybvig Corporations...Ch. 13 - Prob. 2QPCh. 13 - Calculating Cost of Debt Shanken Corp. issued a...Ch. 13 - Calculating Cost of Debt For the firm in the...Ch. 13 - Calculating WACC Mullineaux Corporation has a...Ch. 13 - Taxes and WACC Miller Manufacturing has a target...Ch. 13 - Finding the Capital Structure Farnas Llamas has a...Ch. 13 - Book Value versus Market Value Filer Manufacturing...Ch. 13 - Calculating the WACC In the previous problem,...Ch. 13 - Prob. 10QPCh. 13 - Finding the WACC Given the following information...Ch. 13 - Finding the WACC Titan Mining Corporation has 8.7...Ch. 13 - SML and WACC An all-equity firm is considering the...Ch. 13 - Calculating Flotation Costs Suppose your company...Ch. 13 - Calculating Flotation Costs Southern Alliance...Ch. 13 - WACC and NPV Och, Inc., is considering a project...Ch. 13 - Prob. 17QPCh. 13 - Flotation Costs Goodbye, Inc., recently issued new...Ch. 13 - Calculating the Cost of Equity Floyd Industries...Ch. 13 - Firm Valuation Schultz Industries is considering...Ch. 13 - Prob. 21QPCh. 13 - Flotation Costs and NPV Photochronograph...Ch. 13 - Flotation Costs Trower Corp. has a debt-equity...Ch. 13 - Project Evaluation This is a comprehensive project...Ch. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Go to www.reuters.com and find the list of...Ch. 13 - You now need to calculate the cost of debt for...Ch. 13 - You now have all the necessary information to...Ch. 13 - You used Tesla as a representative company to...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Florida Manufacturing has 7.3 million shares of common stock outstanding. The current share price is $43, and the book value per share is $3. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $68.0 million and a coupon rate of 6.0 percent and sells for 109.3 percent of par. The second issue has a face value of $58.0 million and a coupon rate of 6.5 percent and sells for 106.9 percent of par. The first issue matures in 7 years, the second in 28 years. Suppose the company’s stock has a beta of 1.4. The risk-free rate is 2.1 percent, and the market risk premium is 6.0 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 34 percent. What is the company’s WACC? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))arrow_forwardPandora Manufacturing has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $7. 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 97 percent of par. The second issue has a face value of $50 million and a coupon rate of 8 percent and sells for 106 percent of par. The first issue matures in 22 years, the second in 6 years. 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., .1616.) 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., .1616.) c. Which are more relevant, the book or market value weights? a. Equity/Value: Debt/Value: b. Equity/Value: Debt/Value: c.More relevant:arrow_forwardes Dani Corporation has 6 million shares of common stock outstanding. The current share price is $78, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $65 million, a coupon rate of 7 percent, and sells for 98 percent of par. The second issue has a face value of $35 million, a coupon rate of 8 percent, and sells for 106 percent of par. The first issue matures in 22 years, the second in 5 years. a. What are the company's capital structure weights on a book value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. What are the company's capital structure weights on a market value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. Which are more relevant, the book or market value weights? a. Equity/Value Debt/Value b. Equity/Value Debt/Value c. More relevantarrow_forward
- Dani Corporation has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, a coupon rate of 5 percent, and sells for 97 percent of par. The second issue has a face value of $70 million, a coupon rate of 4 percent, and sells for 109 percent of par. The first issue matures in 21 years, the second in 8 years. Suppose the most recent dividend was $4.40 and the dividend growth rate is 4.7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 23 percent. What is the company’s WACC?arrow_forwardDani Corporation has 4 million shares of common stock outstanding. The current share price is $70, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, a coupon rate of 7 percent, and sells for 95 percent of par. The second issue has a face value of $60 million, a coupon rate of 6 percent, and sells for 107 percent of par. The first issue matures in 25 years, the second in 8 years. Suppose the most recent dividend was $4.30 and the dividend growth rate is 4.5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. The tax rate is 21 percent. What is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC 7.42%arrow_forwardDani Corp. has 5.5 million shares of common stock outstanding. The current share price is $83, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, has a coupon rate of 5.5 percent, and sells for 109 percent of par. The second issue has a face value of $45 million, has a coupon rate of 5.8 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in six years. The most recent dividend was $3.85 and the dividend growth rate is 5 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 21 percent. What is the company’s WACC?arrow_forward
- Tom Corp has 5.5 million shares of common stock outstanding. The current share price is $83 and the book value per share is $5. The cost of equity on the common stock is 8%. The Company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5% and sells for 109% of par. The second issue has a face value of $45 million, a coupon rate of 5.8% and sells for 108% of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. The company has a tax rate of 21%. a. What is the pretax cost of debt? What is the after-tax cost of debt? b. What is the weighted average cost of capital?arrow_forwardAl Ain Manufacturing has 7.5 million shares of common stock outstanding. The current share price is $49, and the book value per share is $4. Al Ain Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $60 million and a 7 percent coupon and sells for 93 percent of par. The second issue has a face value of $50 million and a 6.5 percent coupon and sells for 96.5 percent of par. The first issue matures in 10 years, the second in 6 years. Required: What are Al Ain’s capital structure weights on a book value basis? What are Al Ain’s capital structure weights on a market value basis? Which are more relevant, the book or market value weights? Why?arrow_forwardDani Corporation has 5.5 million shares of common stock outstanding. The current share price is $83, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $80 million, a coupon rate of 5.5 percent, and sells for 109 percent of par. The second issue has a face value of $45 million. a coupon rate of 5.8 percent, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 years. Both bonds make semi-annual coupon payments. a. What are the company's capital structure weights on a book value basis? b. What are the company's capital structure weights on a market value basis? Plz don't copy answerarrow_forward
- Book Value versus Market Value Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $73, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of &85 million, a 7 percent coupon, and sells for 97 percent of par. The second issue has a face value of $50 million, an 8 percent coupon, and sells for 108 percent of par. The first issue matures in 21 years, the second in 6 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?arrow_forwardDani Corporation has 7 million shares of common stock outstanding. The current share price is $79, and the book value per share is $6. The company also has two bond issues outstanding. The first bond issue has a face value of $70 million, a coupon rate of 8 percent, and sells for 94 percent of par. The second issue has a face value of $40 million, a coupon rate of 9 percent, and sells for 107 percent of par. The first issue matures in 23 years, the second in 6 years. a. What are the company's capital structure weights on a book value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. b. What are the company's capital structure weights on a market value basis? Note: Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616. c. Which are more relevant, the book or market value weights? a. Equity/Value Debt/Value b. Equity/Value Debt/Value c. More relevant Market value Check my workarrow_forwardDani Corporation has 6 million shares of common stock outstanding. The current share price is $72, and the book value per share is $9. The company also has two bond issues outstanding. The first bond issue has a face value of $85 million, has a coupon rate of 5 percent, and sells for 97 percent of par. The second issue has a face value of $70 million, has a coupon rate of 4 percent, and sells for 109 percent of par. The first issue matures in 21 years, the second in 8 years. Suppose the most recent dividend was $4.40 and the dividend growth rate is 4.7 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 23 percent. What is the company's WACC? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Investing For Beginners (Stock Market); Author: Daniel Pronk;https://www.youtube.com/watch?v=6Jkdpgc407M;License: Standard Youtube License