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Market Value Capital Structure
Suppose the Shoof Company has this book value balance sheet:
Current assets: 30,000,000 Fixed assets: 50,000,000 Total assets: 80,000,000 Current liabilities: 10,000,000 Long-term debt: 30,000,000 Common equity Common stock (1 million shares): 1,000,000 Retained earnings: 39,000,000 Total claims: 80,000,000 The current liabilities consist entirely of notes payable to banks, and the interest 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 longterm debt consists of 30,000 bonds, each of which has a par value of $1000, carries an annual coupon interest rate of 6%, and matures in 20 years. The going rate of interest on new longterm debt, rd, is 10%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $60 per share. Calculate the firms market value capital structure. I have the answers, I need to know how they get them. ST debt = 11.14% LT debt = 22.03% Common equity = 66.83% |
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