Question

Current Assets 30,000,000 Current Liabilities 20,000,000

Fixed Assets 70,000,000 Notes Payable 10,000,000

Total Assets: 100,000,000 Long-term debt 30,000,000

Common Stock 1,000,000

Retained Earnings 39,000,000

Total liabilities & 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 20-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 $50 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

Find the following:

Short-term debt?

Long-term debt?

Common Equity?

Total capital?

Thank you!

Answer 1

Market price of bond = Interest*PVIFA(YTM,n) + Redemption value *PVIF(YTM,n)

=1000*6%*PVIFA(10%,20) + 1000*PVIF(10%,20)

=60*8.5136 + 1000*0.1486

=510.8138 + 148.6

=659.4138$

Market value of bonds = 659.4138*30000 = 19,782,414$

Market value of shares = 100000*50 = 50,00,000$ ( Assuming par value to be 10$)

Thus market value of of firm's capital structure

=19728414+5000000+10000000

=34,782,414$

Thus

Short-term debt=10,000,000$

Long term debt = 19728414$

Common Equity=50,00,000$