Reference no: EM132142010

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 50,000 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 $75 per share. Calculate the weight of short--term debt according to firm's market value capital structure.

Balance Sheet Current assets $30,000,000 Current liabilities $20,000,000   Notes payable  $10,000,000Fixed assets 70,000,000 Long-term debt 30,000,000   Common stock (1 million shares)1,000,000   Retained earnings 39,000,000Total assets $100,000,000 Total liabilities and equity$100,000,000

63.57%

27.95%

22.03%

11.14%

8.48%