Suppose the Schoof Company has this book value balance sheet: Current assets $30

Question

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 11%, 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 15-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 $70 per share. Calculate the firm's market value capital structure. Round your answers to two decimal places.

Short-term debt     $         %

Long-term debt     $         %

Common equity     $         %

Total capital           $         %

Explanation / Answer

Short Term Debt = $10000000

Long Term Debt = 30000*$1000=$30000000

Common Equity = 1000000*$70 = $70000000

Total Market Value of capital structure = $110000000

Short Term Debt = 10000000/110000000 = 9.09%

Long Term Debt =30000000/110000000 =27.28%

common Equity = 70000000/110000000 = 63.63%

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