Company Z has a total value of $ 500,000. On its balance sheet, it has a debt of $ 150,000 paid at 3%. The shareholders ask for a dividend of 10% a year. Company Z is yearly audited and pays all its due taxes. What is the capital structure for Z? What would be the risk profile of Z? How can capital structure influence the risk profile of Z?
Company Z has a total value of $ 500,000. On its balance sheet, it has a debt of $ 150,000 paid at 3%. The shareholders ask for a dividend of 10% a year. Company Z is yearly audited and pays all its due taxes. What is the capital structure for Z? What would be the risk profile of Z? How can capital structure influence the risk profile of Z?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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Company Z has a total value of $ 500,000. On its
- What is the capital structure for Z?
- What would be the risk profile of Z?
- How can capital structure influence the risk profile of Z?
Expert Solution
Step 1
The capital structure is the structure of source of finance of funds of the company.
Step 2
The computation of capital structure is as follows:
Step 3
Part (1)
The capital structure of firm is from equity and debt. The equity fund is 70% and the debt funds are 30%.
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