Financial Management: Theory & Practice
16th Edition
ISBN: 9780357296776
Author: Eugene F. Brigham, Michael C. Ehrhardt
Publisher: Cengage Learning US
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Chapter 9, Problem 16P
Suppose the Schoof Company has this book value
The notes payable are to banks, and the interest rate on this debt is 10%, 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 $60 per share. Calculate the firm’s market value capital structure.
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Suppose the Schoof Company has this book value balance sheet:
Current assets
Fixed assets
Total assets
Short-term debt
Long-term debt
Common equity
Total capital
$
$30,000,000
$
70,000,000
$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 8%, and a 15-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 $60 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage
values to two decimal places.
Current liabilities
Notes payable
Long-term debt
Common stock (1…
Suppose the Schoof Company has this book value balance sheet:
$30,000,000
Current assets
Fixed assets
Total assets
Short-term debt
Long-term debt
Common equity
Total capital
$
70,000,000
$
$100,000,000
Current liabilities
Notes payable
The notes payable are to banks, and the interest rate on this debt is 9%, 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
nterest rate of 7%, and a 25-year maturity. The going rate of interest on new long-term debt, rd, is 12%, and this
s 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. Do not round intermediate calculations. Round the monetary values to the
nearest dollar and percentage values to two decimal places.
Long-term debt
Common stock (1…
USAir has $54 million of current assets and $58 million of noncurrent assets. It forecastsan EBIT of $10.4 million and pays income taxes at a 35% rate. Short-term bank notes carry a 5%interest rate, and the company can issue long-term bonds at 7%. The company has set a targetdebt ratio of 45%.
Required: I need assistance with Part D. Thanks for your help!
A. For a maturity mix of 60% current and 40% long-term debt, prepare the company'sabbreviated balance sheet.
B. For a maturity mix of 60% current and 40% long-term debt, prepare the company'sfinancial half of its income statement.
C. Based on the financial statements above, calculate the return on equity ratio in order toevaluate the company's risk and return.
D. Based on the financial statements above, calculate the current ratio in order to evaluatethe company's risk and return.
Transcribed Image Text:A Current assets Noncurrent assets Total Assets Current liabilities Long-term liabilities Total debit Stockholders' equity Total…
Chapter 9 Solutions
Financial Management: Theory & Practice
Ch. 9 - Define each of the following terms: a. Weighted...Ch. 9 - Prob. 2QCh. 9 - Prob. 3QCh. 9 - Distinguish between beta (i.e., market) risk,...Ch. 9 - Suppose a firm estimates its overall cost of...Ch. 9 - Calculate the after-tax cost of debt under each of...Ch. 9 - LL Incorporateds currently outstanding 11% coupon...Ch. 9 - Duggins Veterinary Supplies can issue perpetual...Ch. 9 - Prob. 4PCh. 9 - Summerdahl Resorts common stock is currently...
Ch. 9 - Booher Book Stores has a beta of 0.8. The yield on...Ch. 9 - Prob. 7PCh. 9 - David Ortiz Motors has a target capital structure...Ch. 9 - A companys 6% coupon rate, semiannual payment,...Ch. 9 - The earnings, dividends, and stock price of Shelby...Ch. 9 - Radon Homes’ current EPS is $6.50. It was $4.42 5...Ch. 9 - Spencer Supply’s stock is currently selling for...Ch. 9 - Prob. 13PCh. 9 - Prob. 14PCh. 9 - On January 1, the total market value of the...Ch. 9 - Suppose the Schoof Company has this book value...Ch. 9 - The following table gives the current balance...Ch. 9 - Start with the partial model in the file Ch09 P18...Ch. 9 - During the last few years, Jana Industries has...Ch. 9 - b. What is the market interest rate on Jana’s...Ch. 9 - Prob. 3MCCh. 9 - d. (1) What are the two primary ways companies...Ch. 9 - What is the estimated cost of equity using the...Ch. 9 - f. What is the cost of equity based on the...Ch. 9 - g. What is your final estimate for the cost of...Ch. 9 - h. Janas target capital structure is 30% long-term...Ch. 9 - i. Use Janas target weights to calculate the...Ch. 9 - Prob. 10MCCh. 9 - k. Should the company use its overall WACC as the...Ch. 9 - l. What procedures can be used to estimate the...Ch. 9 - m. Jana is interested in establishing a new...Ch. 9 - n. What are three types of project risk? How can...Ch. 9 - o. Explain in words why new common stock that is...Ch. 9 - p. What four common mistakes in estimating the...
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