Homework answers / question archive / Suppose the Schoof Company has this book value balance sheet:  Balance Sheet       Current assets $50,000,000  Current liabilities $30,000,000      Notes payable $20,000,000  Fixed assets 70,000,000 Long-term debt $30,000,000      Common stock (1 million shares) $1,000,000      Retained earnings $39,000,000  Total assets $120,000,000  Total liabilities and equity $120,000,000  The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans

Suppose the Schoof Company has this book value balance sheet:  Balance Sheet       Current assets $50,000,000  Current liabilities $30,000,000      Notes payable $20,000,000  Fixed assets 70,000,000 Long-term debt $30,000,000      Common stock (1 million shares) $1,000,000      Retained earnings $39,000,000  Total assets $120,000,000  Total liabilities and equity $120,000,000  The notes payable are to banks, and the interest rate on this debt is 10%, the same as the rate on new bank loans

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Suppose the Schoof Company has this book value balance sheet: 

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 26,697 bonds, each with a par value of $1,000, an annual coupon interest rate of 12.0%, and a 11-year maturity. The going rate of interest on new long-term debt, rd, is 8.0%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $78.00 per share. Calculate the firm s market value capital structure weight of long-term debt.