Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Suppose that Papa Bell Inc. equity is currently selling for $41 per share, with 3.6 million shares outstanding. The firm also has 8000 bonds outstanding, which are selling at 95% of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E ratio of 0.5.
Which type of security (stocks or bonds) would the firm need to sell to accomplish this?
How much would it have to sell? (Enter your answer in dollars not in millions. Do not round immendiage calculations and round your final answer to 2 decimal places.)
Transcribed Image Text:E.
Share price
Shares outstanding
Bonds outstanding
Bond price (% of par)
Proposed new D/E ratio
41.00
3,600,000
8,000
95.00%
0.50
Complete the following analysis. Do not hard code values in your calculations, and do
not round intermediate calculations.
Current equity ratio
Current debt ratio
Current D/E ratio
Sell bonds or stock?
New debt ratio
Amount of securities to buy and sell
%24
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