XYZ Company is currently 100% equity and zero growth. The firm has an annual EBIT of $1,200,000, its current cost of equity is 7%, and the corporate tax rate is 25% (assume personal taxes are zero). XYZ currently has 200,000 shares outstanding. The firm's CFO has decided to recapitalize by issuing $5,000,000 in debt that carries an interest rate of 5% and repurchasing shares. Assuming that the assumptions of the Modigilani and Miller models hold, what is the expected change in the value per share due to the recapitalization? Group of answer choices $10.23 58.82 $11.72 59.37
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- Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects togenerate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid outas dividends. The firm is considering a capital restructuring for which the company will issue$3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the sameindustry have a cost of equity of 20%. The capital restructuring is going to take place onemonth after its announcement. What is the share price of Supercool on the day before andafter the restructuring completion? can you handwrite please?Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects togenerate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid outas dividends. The firm is considering a capital restructuring for which the company will issue$3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the sameindustry have a cost of equity of 20%. The capital restructuring is going to take place onemonth after its announcement. What is the share price of Supercool on the day before andafter the restructuring completion?
- Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…Blackstone, Inc. is currently an all-equity firm that has 65,000 shares of stock outstanding at a market price of $22 a share. The firm has decided to leverage its operations by issuing $605,000 of debt at an interest rate of 6.5%. This new debt will be used to repurchase shares of the outstanding stock. The restructuring is expected to increase the earnings per share. The company currently pays no taxes. What is the minimum level of earnings before interest and taxes that Blackstone is expecting?Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders’ preference, the company wants to get rid of all its debt. After recapitalization, what is the cost of equity?
- Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders' preference, the company wants to get rid of all its debt. After recapitalization, what is the value of the firm? $90,500,000 $50,000,000 $69,500,000 O $80,000,000 $30,000,000Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm's debt-equity is expected to rise from 35 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The pretax cost of debt is 6.4 percent. The firm expects to have an aftertax earnings of $940,000 per year in perpetuity. The corporate tax rate is 21 percent. a. What is the expected return on the equity before the repurchase agreement? b. What is the return on assets for the firm? (Hint: use the MM Proposition ll with Tax.) c. What is the expected return on the firm's equity after the repurchase announcement? d. What is the weighted-average cost of capital for the company after the repurchase announcement?.Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $80,000. PP's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. Refer to Exhibit 16.1. Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.4% and a new value of operations of $510,638. Assume PP raises $178,723 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase? A) $45.90 B) $48.12 C) $51.06 (D) $53.33 (E) $58.75
- ABC Company is currently an unlevered firm. The company expects to generate $152.3 in earnings before EBIT in perpetuity. The corporate tax rate is 21 percent, implying after tax earnings of $120.32. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring to allow $228 of debt. Its cost of debt capital is 10 percent. Unlevered firms in the same industry have a cost of equity capital of 15 percent. What is the new value of ABC Company? Round to the nearest cent and format as "XXX.XX"SteelCo is an all-equity firm with a share price of $15 and 300 000 shares outstanding. The company is considering restructuring its capital structure by taking on $25million in debt and repurchasing shares. This debt will be paid down by $5million each year. If the corporate tax rate is 30% and the cost of debt is 6%. Assume M&M Proposition ll (with taxes) holds. Determine the value of the restructured firm.Trident Corporation is currently worth $1,000,000. Its current debt-to-value (D/V) ratio is 40%. The company is confident in meeting its debt obligation, and wants to introduce more debt to take advantage of the tax shield of interest payment. It is planning to repurchase part of the common stock by issuing more corporate debt. As a result, the firm’s debt value is expected to rise from $400,000 to $500,000. The cost of debt is 10 percent per year. Trident expects to have an EBIT of $200,000 per year in perpetuity. Trident’s tax rate is 50%. What would be the market value of Trident Corporation if it were unlevered? What would be the expected return on equity if Trident were an all-equity firm? What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? What is the value of equity after the announcement of the stock repurchase plan? How much money do the equityholders expect to receive each year under the new capital structure? What is the…