Question

Makai Metals Corporation has 9.6 million shares of common stock outstanding and 400,000 6 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $44 per share and has a beta of 1.3, and the bonds have 20 years to maturity and sell for 115 percent of par. The market risk premium is 8.4 percent, T-bills are yielding 4 percent, and the company’s tax rate is 40 percent. a. What is the firm's market value capital structure?

Answer 1

The firm's market value capital structure: $882,400,000.

Step-by-step explanation:

The firm's market value capital structure is equal to the sum of its Market value of firm's equity and its Market value of Debt.

- Market value of the firm's equity (E): Outstanding stock x Stock price per stock= 9,600,000 x 44 = $422,400,000.

- Market value of the firm's debt(D): Price per bond x outstanding bonds = 1,000 x 115% x 400,000 = $460,000,000.

- Total value of the firm's capital structure ( V= D+E) : 422,400,000 + 460,000,000 = $882,400,000.