Question
A Company has the following book value balance sheet. Current assets=$10,000,000 Net fixed assets= 60,000000 Total assets $70,000,000 Long-Term Debt = $40,000,000 Common stock (1.5
A Company has the following book value balance sheet.
Current assets=$10,000,000
Net fixed assets= 60,000000
Total assets $70,000,000
Long-Term Debt = $40,000,000
Common stock (1.5 million shares) =1,500,000
Retained earnings= 28,500,000
Total claims $70,000,000
The long-term debt (bonds) have a $1,000 face value, and a coupon interest rate of 5 percent and mature in 15 years, interest is paid semi-annually. The going rate of interest (YTM) on equivalent debt is 10 percent. The common stock has a current market price of $50 per share. Calculate the firms market value capital structure.
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