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 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 7%, and a 25-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 $62 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 | $ | % |
Capital Components |
Market Value |
Weight of Capital Structure |
Short-term debt |
$10,000,000 |
10.66% |
Long-term debt |
$21,830,700 |
23.26% |
Common equity |
$62,000,000 |
66.08% |
Total capital |
$93,830,700 |
100.00% |
Market Value of each capital components
Market Value of Short-term debt
Market Value of Short-term debt = $10,000,000 (Value of Note Payables)
Market Value of Long-term debt
The Market Value of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value
Par Value of the bond = $1,000
Annual Coupon Amount = $70 per year [$1,000 x 7%]
Yield to Maturity of the Bond = 10%
Remaining years to Maturity = 25 Years
The Market Value of the Bond = Present Value of annual Coupon Payments + Present Value of the Bond’s Par Value
= $70[PVIFA 10%, 25 Years] + $1,000[PVIF 10%, 25 Years]
= [$70 x 9.07704] + [$1,000 x 0.09230]
= $635.39 + $92.30
= $727.69 per Bond
Market Value of Long-term debt = Number of long-term Bonds x Market Price per bond
= 30,000 Bonds x $727.69 per Bond
= $2,18,30,700
Market Value of Common equity
Market Value of Common equity = Number of common shares outstanding x Market price per share
= 10,00,000 Common shares x $62 per share
= $62,000,000
Total Market Value = $9,38,300,700
Weight of Capital Structure
Weight of Short-term debt = 10.66% [($100,00,000 / $9,38,300,700) x 100]
Long-term debt = 23.26% [($218,30,700 / $938,300,700) x 100]
Common equity = 66.08% [($620,00,000 / $938,300,700) x 100]
Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: ...
QuesLUI DULU Problem 9-16 Check My Work eBook Problem 9-16 Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets Fixed assets $30,000,000 70,000,000 Current liabilities Notes payable Long-term debt Common stock (1 million shares) Retained earnings Total liabilities and equity $20,000,000 $10,000,000 30,000,000 1,000,000 39,000,000 $100,000,000 Total assets $100,000,000 The notes payable are to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans....
Problem 9-16 Market Value Capital Structure Suppose the Schoof Company has this book value balance sheet: Current assets $30,000,000 50,000,000 Current liabilities Long-term debt 1 Common stock $10,000,000 30,000,000 Fixed assets (1 million shares) Retained earnings I 1,000,000 39,000,000 $80,000,000 Total assets 1 $80,000,000 Total claims 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...
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 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...
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 8%, and a 15-year maturity. The going rate of interest on new long-term debt, rd, is 10%,...
11. The Herbert Sherbet Company has this book value balance sheet: Cash Inventory Fixed assets $30,000,000 10,000,000 20,000,000 Current liabilities $18,000,000 Long-term debt 12,000,000 Common equity Common stock (1 million shares) 1,000,000 Retained earnings 29,000,000 Total assets $60,000,000 Total claims $60,000,000 The current liabilities consist entirely of notes payable to banks, and the interest rate on this debt is 10 percent, the same as the rate on new bank loans. The current liabilities will be paid off with cash in...
We are on January 1, 2015. Highland Beverages is a manufacturer of bottled soft drinks based in Wimberley, Texas. Highland's management is looking to calculate its current weighted average cost of capital (WACC). Below is its December 31, 2014 balance sheet. Liabilities Assets Cash Marketable Securities Accounts Receivable Inventory Total Current Assets $25,000,000 $15,000,000 $20,000,000 $15,000,000 Accounts Payable (A/P) $3,000,000Accruals $50,000,000 Notes Payable (N/P) $75,000,000 $143,000,000Total Current Liabilities $60,000,000 $77,000,000 Long-Term Debt* $100,000,000 Net Fixed Assets Common Equity: Paid-in Capital*...
Sigma Bank has the following balance sheet in millions of dollars. assets liabilities current assets current liabilities cash 21 repo agreements 265 petty cash 0.0001 commercial paper 35.9 marketable securities 8 wages payable 8.5 Long term corp bonds 40.5 interest payable 2.9 residential mortgages 31 taxes payable 4.1 commercial mortgages 3.8 federal funds loans 1.1 prepaid insurance 1.5 unearned revenues 1.5 total current assets 106 accrued income 2.0 total current liabilities 321 investments Sovereign bonds 10 long term liabilities Loans...
value: 0.00 points The table below shows a book balance sheet for the Wishing Well Motel chain. The company's long-term debt is secured by its real estate assets, but it also uses short-term bank loans as a permanent source of financing it pays 13% interest on the bank debt and 11% interest on the secured debt. Wishing Well has 10 million shares of stock outstanding, trading at $85 per share. The expected return on Wishing Well's common stock is 18%....
Harrison, Inc., has the following book value balance sheet: Balance Sheet Assets Liabilities and equity Current assets $ 140,000,000 Total debt $ 250,000,000 Equity Common stock 30,000,000 Capital surplus 77,000,000 Net fixed assets 415,000,000 Accumulated retained earnings 198,000,000 Total shareholders' equity $ 305,000,000 Total assets $ 555,000,000 Total debt and shareholders' equity $ 555,000,000 a. What is the debt–equity ratio based on book values? b. Suppose the market value of the company's debt is...
416. Capital Structure. Examine the following book- value balance sheet for University Products, Inc. What is the capital structure of the firm based on market values? The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are one million common shares out- standing. (LO2) Assets Cash and short-term securities SI 3 Accounts receivable Inventories Plant and equipment Total Liabilities and Net Worth Bonds, coupon = 8%, paid annually (maturity = 10 years,...