Market Value Capital Structure Suppose the Schoof Company has this book value ba
ID: 2741181 • Letter: M
Question
Market Value Capital Structure
Suppose the Schoof Company has this book value balance sheet:
The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 9%, 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 15-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 $62 per share. Calculate the firm's market value capital structure. Round your answers to two decimal places.
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 $80,000,000Explanation / Answer
short term debt = 10,000,000
percentage = 10.66%
price of bond
= 80 * [1 - (1+ 12%)^-15]/12% + 1000/(1+12%)^15
= 727.57
long term debt = 30000 * 727.57
= 21,827,100
percentage = 23.26%
common equity = 1000000 * 62 = 62,000000
percentage = 66.08%
total capital = 93,827,100
percentage = 100%