PROBLEM 4-4
Given
December 31, 2006
Liabilities and Owner’s CapitalBalance Sheet
(Book Values)Invested Capital
(Market Values)
Current liabilities
Accounts payable$ 8,250,000
Notes payable- –
Other current liabilities`7,266,000
Total current liabilities$ 15,516,000$ –
Long-term debt (8.5% interest paid
semi-annually, due in 2015)$ 420,000,000$ 434,091,171
Total liabilities$ 435,516,000$ 434,091,171
Owners’ capital
Common stock ($1 par value per share)$ 40,000,000
Paid-in-capital100,025,000
Accumulated earnings255,000,000
Total owners’ capital$ 395,025,000$ 900,000,000
Total liabilities and owners’ capital$ 830,541,000$ 1,334,091,171
Capital Market Data
Treasury Bond Yield5.42%
Market Risk Premium5.00%
Unlevered equity beta (SIC 4924)0.90
Stock price$ 22.50
Market capitalization
Yield on debt8.00%
Bond beta0.30
Short-term interest bearing debt
New long-term debt total$ –
Tax Rate40.00%