Problem
Market Value Capital Structure
Suppose the Schoof Company has this book value balance sheet:
|
Current assets
|
$30,000,000
|
Current liabilities
|
$20,000,000
|
|
|
|
Notes payable
|
10,000,000
|
|
Fixed assets
|
70,000,000
|
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 7%, 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 11%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $70 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.