MKT VS. BOOK WEIGHT

Balance Sheet (In million dollars)

December 31, 2012

Assets Liabilities

Current Assets 100 Accounts Payable 20

Notes Payable 80

Net Fixed Assets 400 Bonds (6%) 150

Preferred Stocks 50

Common Stock ($1 Par) 10

Paid in Capital 24

_______________________ Retained Earnings 166

Total Assets 500 Tot. Liab. & Equity 500

1. Bonds mature in 10 years; the coupon rate is 6%, and the required rate of return is 8%.
2. Preferred stocks expected return is 8%, and the required rate of return is 12%.
3. Common Stock: The growth rate is 20% for the first three years, 7% onwards. The required rate of return is 17%. The dividend is $2.00 at the beginning of the investment horizon.

A. Calculate the book value weight (Ignore short-term liabilities); B. Calculate the market price per bond. C. Calculate the market value of preferred stocks; D Calculate the market value weight of the firms capital structure. (Ignore short-term liabilities)

1. DETERMINE THIS COMPANYS BOOK VALUE CAPITAL STRUCTURE
2. DETERMINE THIS COMPANYS MARKET VALUE CAPITAL STRUCTURE
3. MARKET PRICE PER PREFERRED STOCK:
4. MARKET-VALUE WEIGHT