Suppose that Papa Bell, Inc.’s, equity is currently selling for
$41 per share, with 3.6 million shares outstanding. The firm also
has 8,000 bonds outstanding, which are selling at 95% of par.
Assume Papa Bell was considering an active change to its capital
structure so as to have a D/E of 0.5.
Which type of security (stocks or bonds) would the firm need to
sell to accomplish this?
How much would it have to sell? (Enter your answer in dollars not
in millions. Do not round intermediate calculations and round your
final answer to 2 decimal places.)
Share Price: $41.00
Shares Outstanding: 3,600,000
Bonds Outstanding: 8,000
Bond Price (% of Par): 95%
Proposed New D/E Ratio: 0.50
Complete the following analysis. Do not hard code values in your
calculations, and do not round intermediate calculations.
Current Equity Ratio:
Current Debt Ratio:
Current D/E Ratio:
Sell Bonds or Stock?:
New Debt Ratio:
Amount of Securities to Buy and Sell: