Examine the following book-value balance sheet for University Products, Inc. What is the capital structure of the firm on the basis of market values? The preferred stock currently sells for $15 per share and the common stock for $20 per share. There are 1 million common shares outstanding.
Book Value Balance Sheet
(all values in millions)
|
Cash and short-term securities
|
$1
|
Bonds, coupon= 8%, paid annually (maturity= 10years, current yield to maturity =9%)
|
$10.0
|
|
Accounts receivable
|
3
|
Preferred stock (par value $20 per share)
|
2.0
|
|
Inventories
|
7
|
Common stock (par value $.10)
|
.1
|
|
Plant and equipment
|
21
|
Additional paid-in stockholders'
|
9.9
|
|
|
|
capital Retained Earnings
|
10.0
|
|
Total
|
$32
|
Total
|
32.0
|