Current ($) ) | Target ($) | |
Book Value of Debt | 62 | 62 |
Market Value of Debt | 59 | 63 |
Book Value of Shareholder’s Equity | 78 | 88 |
Market Value of Shareholder’s Equity | 230 | 240 |
Using the new debt-to-equity ratio of Budweiser that would result from the additional $45 million debt and $65 million equity is appropriate.
Using the current debt-to-equity ratio of 0.55 is appropriate.
Using the current debt-to-equity ratio of 0.55 is not appropriate, but the debt-to-equity ratio of the new product line i.e. 0.69 is appropriate.
Source of capital | Capital structure proportion | Marginal after-tax cost |
Long-term debt | 30% | 12% |
Preferred stock | 5% | 15% |
Common equity | 65% | 20% |