FIN 401 Lecture Notes - Capital Structure, Ryerson University
26 Sep 2014
School
Department
Course
Professor
Document Summary
S))))))))))))))))))))))))))))))))))))): (100 marks) johntron pharmaceuticals, a publicly traded company, is going to institute a capital structure change. The firm currently has 10 million common shares outstanding and the price per share, as of the trading close yesterday, was sh. 87 per share. The firm also has one bond outstanding in the market, with a face value of 10 million. The effective rate of return on the bond is 11. 4%, and the coupon (paid annually) is 5%. The bond has exactly 20 years to maturity, and the most recent coupon was paid yesterday. The firm also has a bank loan with a floating rate and a face value of ,000,000. The firm pays interest on the bank loan annually at the going rate at that time. Right now, the interest rate on the bank loan is 11. 1 percent annually. Future ebit predictions are ,000,000 per year if the firm experiences a recession and ,000,000 per year if the firm experiences growth.
