Consider XYZ Corporation, which has $50 million of assets, 80% of which are financed with equity and 20% of which are financed with debt. There are 1 million shares of XYZ Corporation stock outstanding, valued at $40 per share. The company’s current balance sheet is simple: XYZ Corporation Balance Sheet ------------------------------------------------- Assets $50,000,000 Debt $10,000,000 Equity $40,000,000 Suppose XYZ Corporation has investment opportunities requiring $20 million of new capital. Further, suppose XYZ Corporation can raise the new capital in one of three ways: Scenario #1: Issue $20 million equity (500,000 shares of stock at $40 per share) Scenario #2: Issue $10 million equity (250,000 shares of stock at $40 per share) and borrow $10 million through a bond issue with an annual interest rate of 8% Scenario #3: Borrow $20 million through a bond issue with an annual interest rate of 8% What does the new capital structure look like for XYZ Corporation in each scenario? For each scenario, please provide: Assets - Debt/Equity - Debt to Equity ratio - Debt to Capital ratio -
Consider XYZ Corporation, which has $50 million of assets, 80% of which are financed with equity and 20% of which are financed with debt. There are 1 million shares of XYZ Corporation stock outstanding, valued at $40 per share. The company’s current balance sheet is simple:
XYZ Corporation
Balance Sheet
-------------------------------------------------
Assets $50,000,000 Debt $10,000,000
Equity $40,000,000
Suppose XYZ Corporation has investment opportunities requiring $20 million of new capital. Further, suppose XYZ Corporation can raise the new capital in one of three ways:
Scenario #1: Issue $20 million equity (500,000 shares of stock at $40 per share)
Scenario #2: Issue $10 million equity (250,000 shares of stock at $40 per share) and borrow $10 million through a bond issue with an annual interest rate of 8%
Scenario #3: Borrow $20 million through a bond issue with an annual interest rate of 8%
What does the new capital structure look like for XYZ Corporation in each scenario?
For each scenario, please provide:
Assets -
Debt/Equity -
Debt to Equity ratio -
Debt to Capital ratio -
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