Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed.
What methods can be used by the FED to influence interest rates? Are these methods effective? Use examples where appropriate.
If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?
Compare long-term instruments and short-term risks, in terms of the various types of risk to which investors are exposed.
What methods can be used by the FED to influence interest rates? Are these methods effective? Use examples where appropriate.
If a company is going to finance a project entirely with retained earnings, what would be the cost of that capital? Why?
Related questions
Market Value Capital Structure
Suppose the Schoof Company has this book value balance sheet:
| Current assets | $30,000,000 | Current liabilities | $10,000,000 | |||
| Fixed assets | 50,000,000 | Long-term debt | 30,000,000 | |||
| Common stock | ||||||
| (1 million shares) | 1,000,000 | |||||
| Retained earnings | 39,000,000 | |||||
| Total assets | $80,000,000 | Total claims | $80,000,000 |
The current liabilities consist entirely of notes payable 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 7%, and a 25-year maturity. The going rate of interest on new long-term debt, rd, is 12%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $62 per share. Calculate the firm'smarket value capital structure. Round your answers to two decimal places.
| Short-term debt | $ | % | ||
| Long-term debt | $ | % | ||
| Common equity | $ | % | ||
| Total capital | $ | % |
Suppose the Schoof Company has this book value balance sheet:
| Current assets | $30,000,000 | Current liabilities | $10,000,000 | |||
| Fixed assets | 50,000,000 | Long-term debt | 30,000,000 | |||
| Common stock | ||||||
| (1 million shares) | 1,000,000 | |||||
| Retained earnings | 39,000,000 | |||||
| Total assets | $80,000,000 | Total claims | $80,000,000 |
The current liabilities consist entirely of notes payable 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 9%, and a 15-year maturity. The going rate of interest on new long-term debt, rd, is 12%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $62 per share. Calculate the firm's market value capital structure. Round your answers to two decimal places.
| Short-term debt | $ | % | ||
| Long-term debt | $ | % | ||
| Common equity | $ | % | ||
| Total capital | $ | % |
