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...

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Market Value Capital Structure
Suppose the Schoof Company has this book value balancesheet:
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 tobanks, and the interest rate on this debt is 7%, the same as therate on new bank loans. These bank loans are not used for seasonalfinancing but instead are part of the company's permanent capitalstructure. The long-term debt consists of 30,000 bonds, each with apar value of $1,000, an annual coupon interest rate of 7%, and a20-year maturity. The going rate of interest on new long-term debt,r_d, is 12%, and this is the present yield to maturity onthe bonds. The common stock sells at a price of $58 per share.Calculate the firm's market value capital structure. Roundyour answers to two decimal places.
Short-term debt $   %
Long-term debt $   %
Common equity $   %
Total capital $   %

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3.8 Ratings (340 Votes)

CapitalComponentsMarket ValueWeight of CapitalStructureShortterm debt100000001152Longterm debt187959002166Common equity580000006682Total capital8679590010000Market Value of each capital componentsMarket Value ofShortterm debtMarket Value of See Answer

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Market Value Capital StructureSuppose the Schoof Company has this book value balancesheet:Current assets$30,000,000Current liabilities$10,000,000Fixed assets50,000,000Long-term debt30,000,000 Common stock (1 million shares)1,000,000Retained earnings39,000,000Total assets$80,000,000Total claims$80,000,000The current liabilities consist entirely of notes payable tobanks, and the interest rate on this debt is 7%, the same as therate on new bank loans. These bank loans are not used for seasonalfinancing but instead are part of the company's permanent capitalstructure. The long-term debt consists of 30,000 bonds, each with apar value of $1,000, an annual coupon interest rate of 7%, and a20-year maturity. The going rate of interest on new long-term debt,rd, is 12%, and this is the present yield to maturity onthe bonds. The common stock sells at a price of $58 per share.Calculate the firm's market value capital structure. Roundyour answers to two decimal places.Short-term debt$ %Long-term debt$ %Common equity$ %Total capital$ %

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

Short-term debt	$	%
Long-term debt	$	%
Common equity	$	%
Total capital	$	%