Market Value Capital Structure Suppose the Schoof Company has this book value ba
ID: 2741041 • Letter: M
Question
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 8%, 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 6%, and a 15-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 $68 per share. Calculate the firm's market value capital structure. Round your answers to two decimal places.
Explanation / Answer
The Schoof Company All Amounts in $ Market Value Capital Structure Capital Base Amount Capital New Market Cost Capital Cost Value Amount Notes Payable 10000000 8% 8% 8000000 Long-Term Debt Bonds 30000000 6% 10% 50000000 Equity Value 1000000 Price $ 1 Price $ 68 68000000 Market Value Capital Structure 126000000
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