Hero Manufacturing has 7.5 million shares of common stock outstanding. The current share price is $87 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, a coupon rate of 6.3 percent and sells for 106.5 percent of par. The second issue has a face value of $50.5 million, a coupon rate of 6.8 percent and sells for 110.3 percent of par. The first issue matures in 8 years, the second in 24 years.

a. What are Filer’s capital structure weights on book value basis?

b. What are Filer’s capital structure weights on a market value basis?

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

d. Suppose the most recent dividend was $4 and the dividend growth rate is 6 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 35 percent. What is the company’s WACC?