Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. suppose the school company has this book value bal

Suppose the School Company has this book value balance sheet: Current assets $30,000,000 Current liabilities $20,000,000...

Free

80.2K

Verified Solution

Question

Finance

Suppose the School Company has this book value balance sheet:Current assets $30,000,000 Current liabilities $20,000,000 Fixedassets 70,000,000 Notes payable $10,000,000 Long-term debt30,000,000 Common stock (1 million shares) 1,000,000 Retainedearnings 39,000,000 Total assets $100,000,000 Total liabilities andequity $100,000,000 The notes payable are to banks, and theinterest rate on this debt is 7%, the same as the rate on new bankloans. These bank loans are not used for seasonal financing butinstead are part of the company's permanent capital structure. Thelong-term debt consists of 30,000 bonds, each with a par value of$1,000, an annual coupon interest rate of 9%, and a 25-yearmaturity. The going rate of interest on new long-term debt, rd, is12%, and this is the present yield to maturity on the bonds. Thecommon stock sells at a price of $52 per share. Calculate thefirm's market value capital structure. Do not round intermediatecalculations. Round your answers to two decimal places.

Answer & Explanation Solved by verified expert
4.2 Ratings (922 Votes)

                  K = N
Bond Price =? [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N
                   k=1
                  K =25
Bond Price =? [(9*1000/100)/(1 + 12/100)^k]     +   1000/(1 + 12/100)^25
                   k=1
Bond Price = 764.71

MV of Long term debt = price*number of debt = 764.71*30000=22941300

Total debt = MV of long term debt+notes payable = 22941300+10000000=32941300

Total Capital value = Value of Debt + Value of Equity
=32941300+52000000
=84941300
Weight of Debt = Value of Debt/Total Capital Value
= 32941300/84941300
=0.3878 = 38.78%
Weight of Equity = Value of Equity/Total Capital Value
= 52000000/84941300
=0.6122 = 61.22%

MV of equity = shares*price = 52*1000000=52000000

MV of debt =
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Mechanical Engineering
1.2K views

Prove: under the same compression ratio, the thermal efficiency of the Otto cycle is greater than...

Physics
1.2K views

A disk with m=4.4 kg and radius 14.1 cm rolls a distance 4.3 m down a...

Electrical Engineering
1.2K views

what atomic particle is responsible for powering the LED light?

Basic Math
1.2K views

Suppose that you are interested in estimating the average number of miles per gallon of gasoline...

Basic Math
1.2K views

2 A marketing class polled 150 people at a shopping center to determine how many...

Statistics
1.2K views

9 This section contains EIGHT questions Each question has FOUR options A B C and...

Accounting
1.2K views

use data in first picture to complete problems ...

Accounting
1.2K views

Product X is a consumer product with a...

Accounting
1.2K views

Benoit Company produces three products-A, B, and C. Data concerning the three products follow (per...

Accounting
1.2K views

menuble would the compariy ceport in its bolance sheer of the end ot the second...

Accounting
1.2K views

The following information pertains to the activities of Montclair Hospital for the year ended December...

Accounting
1.2K views

Liquidity ratios: Laurel Electronics has a quick ratio of 1.15, current liabilities of $5,311,020, and...