Carlton Manufacturing Company Ltd Balance Sheet as at 31/12/19 ASSETS LIABILITIES Notes Accounts payable Bank loan (interest only) Cash 110 150 Accounts Receivable 220 200 Inventory Property, plant & equipment 610 Mortgage Loan 2 540 1,170 Corporate bonds 3 350 Total Assets 2,110 Total liabilities 1,240 SHAREHOLDERS' EQUITY Ordinary shares 4 450 Preference Shares 210 Retained earnings Total shareholders' equity 210 870 Total liabilities and shareholders' equity 2,110 Notes 1. The interest rate on the bank loan is 9.7% p.a. 2. Theinterest rate on the mortgage loan is 6% p.a. 3. The corporate bonds have a credit rating of B+ and have 2 years to maturity. They make quarterly coupon payments at a coupon rate of 4% p.a. The ordinary shares are shown on the balance sheet at their book value of $1 per share. They have a beta of 1.1. They have just paid a dividend of $0.05. The dividend is expected to grow at a rate of 7% p.a. for the next 4 years, and after that it will grow at a constant rate of 3% p.a. in perpetuity. 4. The preference shares have a par value of $1 each and are shown on the Balance Sheet at their par value. They pay a constant dividend of $0.11 and they are currently trading for $1.03. 5. 6. The market risk premium is 7.8%. 3 195 6 yr 9 yr Rating 1 y 123 2 yr 159 5 10 yr 4 yr 7 y 339 8 yr 375 AAA 231 267 303 411 447 AA+ 131 275 347 419 167 175 203 239 311 383 455 AA 139 211 247 283 319 355 391 427 463 AA- 147 183 219 255 291 327 363 399 435 471 A+ 155 191 227 263 299 335 371 407 443 479 A 163 199 415 451 235 243 271 307 343 379 487 A- 171 207 279 315 351 387 423 459 495 BBB+ 179 215 251 287 323 359 395 431 467 503 BBB 187 223 259 295 331 367 403 475 439 447 511 BBB- 195 231 267 303 339 375 411 483 519 BB+ 203 239 275 311 347 383 419 427 455 491 527 BB 211 247 283 319 355 391 463 499 507 535 BB- 219 255 291 327 363 399 435 471 543 B+ 227 263 299 335 371 407 443 479 515 551 B 235 271 307 343 379 415 451 487 523 559 B- 243 279 315 351 387 423 459 495 531 567 CCC+ 251 287 323 359 395 431 467 503 539 575 CCC 259 295 331 367 403 439 475 483 511 547 583 CC- 267 303 339 347 375 411 447 519 555 591 CC 275 311 383 419 455 491 527 563 599 283 319 355 391 427 463 499 535 571 607