In: Finance
Problem 9-16
Market Value Capital Structure
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 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 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 7%, and a 20-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. Do not round intermediate calculations. Round your answers to two decimal places.
Short-term debt | $ | % | ||
Long-term debt | ||||
Common equity | ||||
Total capital | $ | % |