Suppose the Schoof Company has this book value balance sheet:

Current assets		$30,000,000	Current liabilities			$20,000,000
			Notes payable			$10,000,000
Fixed assets		70,000,000	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 10%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the companys permanent capital structure. The long-term debt consists of 50,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 6%, and a 20-year maturity. The going rate of interest on new long-term debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $75 per share. Calculate the weight of long term debt according to firms market value capital structure.

Include short-term debt when calculating individual weights, that is, calculate the weight of short-term debt (notes payable), the weight of long-term debt, and the weight of equity in order to get the answer for the weight of long-term debt.

		63.57%
		11.14%
		27.95%
		66.83%
		22.03%

QUESTION 6

What is the discounted payback period for the following project assuming a cost of capital of 12%? (The answer choices are all in years.)

year	cash flow
0	($35,000)
1	$9,500
2	$9,500
3	$9,500
4	$9,500
5	$9,500
6	$9,500
7	$9,500

		7.00
		4.44
		3.68
		5.16
		6.44

QUESTION 7

What is the crossover rate for the following two projects?

Year	Project A	Project B
0	($680)	($650)
1	($350)	$215
2	$210	$215
3	($150)	$215
4	$1,100	$215
5	$820	$215
6	$990	$215
7	$475	$215

		26.80%
		20.65%
		14.76%
		32.41%
		29.80%