Question

Lingenburger Cheese Corporation has 6.4 million shares of common stock outstanding, 225,000 shares of 3.7 percent preferred stock outstanding, and 110,000 bonds with a semiannual coupon rate of 5.4 percent outstanding, par value $1,000 each. The common stock currently sells for $72 per share and has a beta of 1.20, the preferred stock has a par value of $100 and currently sells for $84 per share, and the bonds have 18 years to maturity and sell for 108 percent of par. The market risk premium is 7.2 percent, T-bills are yielding 3.2 percent, and the company's tax rate is 24 percent. What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., 1616.)

Answer 1

The market value capital structure of Lingenburger Cheese Corporation is $598.5 million.

Step-by-step explanation:

The market value capital structure of Lingenburger Cheese Corporation can be calculated by multiplying the number of shares of each type of stock by the respective market price and adding the value of bonds. Here's how:

1. Calculate the market value of common stock: 6.4 million shares * $72 per share = $460.8 million
2. Calculate the market value of preferred stock: 225,000 shares * $84 per share = $18.9 million
3. Calculate the market value of bonds: 110,000 bonds * $1,080 = $118.8 million
4. Add the values from steps 1, 2, and 3 to get the market value capital structure: $460.8 million + $18.9 million + $118.8 million = $598.5 million