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 equity
|
|
|
|
|
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 10 percent, the same as the rate on new bank loans. The longterm debt consists of 30,000 bonds, each of which has a par value of $1,000, carries an annual coupon interest rate of 6 percent, and matures in 20 years.
The going rate of interest on new long-term debt, rd, is 10 percent, and this is the present yield to maturity on the bonds. The common stock sells at a price of $60 per share. Calculate the firm's market value capital structure.