Question
Problem 9-16 Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $10,000,000 Fixed assets 50,000,000
Problem 9-16 Market Value Capital Structure
Suppose the Schoof Company has this book value balance sheet:
Current assets | $30,000,000 | Current liabilities | $10,000,000 | |||
Fixed assets | 50,000,000 | Long-term debt | 30,000,000 | |||
Common stock | ||||||
(1 million shares) | 1,000,000 | |||||
Retained earnings | 39,000,000 | |||||
Total assets | $80,000,000 | Total claims | $80,000,000 |
The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 9%, and a 25-year maturity. The going rate of interest on new long-term debt, rd, is 12%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $56 per share. Calculate the firm's market value capital structure. Round your answers to two decimal places.
Short-term debt | $ | | ||
Long-term debt | $ | | ||
Common equity | $ | | ||
Total capital | $ | |
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