Purchase Solution

Capital Structure of the firm based on market values

Not what you're looking for?

Ask Custom Question

Examine he book value balance sheet of University Products Inc. What is the capital structure of the firm based on market values? The preferred stock currently sells for $ 15 per share and the common stock for $ 20 per share. There are one million common shares outstanding.

Attached is the complete problem.

Attachments
Purchase this Solution
Solution Summary

The solution calculates the market value weights of common stock, preferred stock, bonds.

Solution Preview

See attached file for complete solution.

Step 1) Calculate the current mkt price of bonds and then find the mkt value of all the bonds

To calculate the price of the bond we need to calculate / read from tables the values of
PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
Price of bond= PVIF * Redemption value + PVIFA * interest payment per period

PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n

Price ...

Purchase this Solution
Free BrainMass Quizzes
Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Motivation

This tests some key elements of major motivation theories.

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

View More Free Quizzes
Related BrainMass Solutions

  • Total market value of the firm with no growth opportunities

    The consultant believes that if the company moves to a capital structure financed with 20 percent debt and 80 percent equity (based on market values) that the cost of equity will increase to 11 percent and that the pre-tax cost of debt will be 10 percent

  • The Rivoli Company

    If the assets is $3,000,000, and the firm is considering selling bonds and moves to capital structure with 30 percent debt based on market values, then the debt portion of the firm will be equal to $3,000,000 x 30% = $900,000 Then, we will calculate

  • Weighted Average Cost of Capital

    Since the balance sheet is based on historical costs, it may not be reflective of current market values, nor is it likely to reflect the firm's target capital structure objective.

  • BETA and WACC for Beckwith Engineering and Associates (BEA)

    The market risk premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows.

  • APV

    The market cost of the debt is 5% and this is expected to stay so long as the firm maintains its target capital structure.

  • WACC for Pettit Printing Company

    The firm's EBIT is $13.24 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 70% (based on market values) or decreasing it to 30%.

  • 33 Qns on Capital Structure, Dividends, Working Capital

    If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10 percent.

  • Calculate cost of equity and WACC

    Its balance sheet for year-end 2006 describes a firm with $1,184,841,000 in assets (book values) and invested capital of approximately $2.2 billion (based on market values): (attached spreadsheet) Harriston's CFO, Margaret L.

  • Capital structure and stock price

    If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10 percent.

View More Related Solutions