Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000 Fixed assets 70,000,000 Notes payable $10,000,000 Long-term debt 30,000,000

Suppose the Schoof Company has this book value balance sheet:

Current assets $30,000,000 Current liabilities $20,000,000
Fixed assets 70,000,000 Notes payable $10,000,000
Long-term debt 30,000,000
Common stock (1 million shares) 1,000,000
Retained earnings 39,000,000
Total assets $100,000,000 Total liabilities and equity $100,000,000

The notes payable are 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 8%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 11%, 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. Do not round intermediate calculations. Round your answers to two decimal places.

Short-term debt $ ___________ ___________ %
Long-term debt ___________ ___________
Common equity ___________ ___________
Total capital $ ___________ ___________ %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance A Contemporary Application Of Theory To Policy

Authors: David N Hyman

12th Edition

0357442156, 978-0357442159

More Books

Students also viewed these Finance questions