Essay About Total Value Of The Firm And Market Value Balance Sheet

Fin 3504 – Chapter 16
Chapter 16 Mini-Case1. it is clear that the company performs well with minimal risk, because the company have not used debt in the capital structure for over 25 years. However, making a purchase of $95 million worth of land, the use of debt is most likely to increase the total value of the firm. Therefore, the issue of debt is recommended in order to maximize the total market value. 2. Market value balance sheet before the purchaseMarket Value BSAssetsAmount in ($)Debt and EquityAmount in ($)Assets$340,200,000Equity $340,200,000Total Assets $340,200,000Total Debt and equity$340,200,0003. A. Calculate NPV      NPV= -$95,000,000 + $110,294,118 = $15,294,118 B. Market value balance sheet after the purchase Market Value BSAssetsAmount in ($)Debt and EquityAmount in ($)Assets$15,294,118Equity $15,294,118Total Assets $355,494,118Total Debt and equity$355,494,118The new price per share= ($355,494,118/$9,000,000) =$39.50Numbers of share to issue= ($95,000,000/$39.50) =$2,405,063  C. Market Value Balance sheetMarket value balance sheetAssetsAmount in ($)Liabilities Amount in ($)Cash95,000,000Old Assets 340,200,000NPV of projects15,294,118Equity450,494,118Total Assets $450,494,118Total debt and equity $450,494,118