Compute fast debt ratio-interest-bearing debt ratio

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Complete the homework assignment in Microsoft Word or Excel. Clearly label and organize each problem and show your work.

1. (Defining capital structure weights) In August of 2015 the capital structure of the Jefferson Corporation (measured in book and market values) appeared as follows:

(Thousands of dollars)

Book Values

Market Values

Short-term debt

$ 1,221,000

$ 1,221,000

Long-term debt

 11,927,000

 11,927,000

Common equity

9,113,000

 26,170,000

Total capital

$22,261,000

$39,318,000

What weights should Emerson use when computing the firm's weighted average cost of capital?

2. (Calculating debt ratio) Fast Solutions, Inc. has the following financial structure:

Accounts payable

$ 500,000

Short-term debt

250,000

Current liabilities

$ 750,000

Long-term debt

750,000

Shareholders' equity

500,000

Total

$2,000,000

  • Compute Fast's debt ratio and interest-bearing debt ratio.
  • If the market value of Fast's equity is $2,000,000 and the value of the firm's debt is equal to its book value, assuming excess cash is zero, what is the debt-to-enterprise-value ratio for Fast?
  • If you were a bank loan officer who was analyzing whether or not to loan more money to Fast, which of the ratios calculated in parts a and b is most relevant to your analysis? Why?

Reference no: EM131725591

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