The market price of Albertson Ltd.'s common stock is $5.50 and 100,000 shares are outstanding. The firm's books show common equity accounts totaling $400,000. There are 5,000 preferred shares outstanding that originally sold for their par value of $50, pay an annual dividend of $3, and are currently selling to yield an 8% return. Also, 200 bonds are outstanding that were issued 5 years ago at their $1,000 face values for 30-year terms pay a coupon rate of 6.4%, and are currently selling to yield 10%.
Assume that the coupon payments are semi-annual. Develop Albertson's capital structure based on both book and market values.
Capital structure refers to the amount of money issued from each type of financial instrument for financing of the projects of the company. The capital structure can be as per book value, market value or target capital structure.
Answer and Explanation: 1
We have the book values of each source of finance and the market value of common stock.
So let us find out the market value of the bond and the...
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fromChapter 15 / Lesson 2
In order to grow and expand or simply pay operational costs, companies access their capital structure. Discover the costs associated with each component of the capital structure and the concept of risk and return.