Examine the following book-value balance sheet for University Products, Inc. What is the capital structure of the firm based on market value? The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are one million common shares outstanding.
BOOK VALUE BALANCE SHEET
(all values in millions)
Assets Liabilities and Net Worth
Cash and short-term securities $1 Bonds, coupon = 8% paid annually
maturity = 10 years, yield to maturity = 9% $10.0
Accounts receivable 3 Preferred stock (par value $20 per share) 2.0
Common stock (par value $.10) 0.1
Inventories 7 Additional paid in stockholders 9.9
Plants and equipment 21 Retained earnings 10.0
Total $32 $32.0
Enter formulas to calculate the capital structure in dollars.
Bonds FORMULA #DIV/0!
Preferred Stock FORMULA #DIV/0!
Common Stock FORMULA #DIV/0!
Total $0 #DIV/0!
The solution examines the book-value balance sheet for University Products, Inc.