Problem:
Examine the following book-value balance sheet. What is the capital structure of the firm based on market value? Solve for Formulas below?
The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are one million common share outstanding.
Assets
Cash and short-term securities $1
Accounts receivable 3
Inventories 7
Plants and equipment 21
TOTAL ASSETS: $32
Liabilities and Net Worth
Bonds, coupon = 8% paid annually
maturity = 10 years, yield to maturity = 9% $10.0
Preferred stock (par value $20 per share) 2.0
Common stock (par value $.10) 0.1
Additional paid in stockholders 9.9
Retained earnings 10.0
TOTAL: $32.0
Capital Structure
DOLLARS
Bonds FORMULA
Preferred Stock FORMULA
Common Stock FORMULA
Total $0