2. Conspicuous Consumption Ine, a prominent consumer products firm is debating Whether or not to convert its all-equity capital structure to one that is 35 percent debt. Currently. there are 8,000 shares outstanding and the prise per share is $70. EBIT is expected to remain at $30,000 per year forever, the interest rate on new debt is 8 percent and there are no taxes. A. Ms.Brown,a shareholder of the firm .owns 100shares of stock .what is her cashi flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? B. What will Ms. Brown's cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares. C. Suppose the company does convert, but MS Brown prefers the current all-equity capital structure. Show how she could unlever her shares of stock to Recreate the original capital structure. D. Using your answer to part (C) explain why the company's choice of capital
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- Ma1. Please give only typed answer. 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. Before recapitalization, what is the value of the firm? $25,000,000 $20,000,000 $80,000,000 $30,000,000 $50,000,0009 es Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 6,000 shares outstanding and the price per share is $40. EBIT is expected to remain at $12,000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. a. Allison, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 100 of her shares. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? Note: Do not round intermediate…X Corporation (an all-equity financed firm) is contemplating about changing its capital structure. It plans to have 35% debt in the proposed capital structure. Currently, there are 7600 shares outstanding and the price per share is $55. EBIT is expected to remain at $36,000 per year forever. The interest rate on new debt is 8%, and there are no taxes. Which capital structure should Mr. ABC, a shareholder of the firm, prefer? He owns 100 shares of X Corporation. Assume that dividend payout ratio is 100%.
- 2. The Bakery is an all equity firm. It has million outstanding share currently prices at $10 per share. Its cost of equity is 15%. Management considers borrowing $4 million at a cost of 9% per annum. They will use the money to buy back stocks. The Bakery pays no taxes. a. After the buy back, what will be the cost of equity? b. what will be the weighted average cost of capital of the Bagel Bakery2. Major Bagel is an all-equity firm. It has 20 million outstanding shares currently priced at $25 per share. Its cost of equity is 18%. Management considers borrowing $100 million at a cost of 8% per annum. They will use the money to buy back stocks. Major Bagel pays no taxes. a. After the buy back, what will be the cost of equity? b. What will be the weighted average cost of capital of the Major Bagel?Company AAA and Company ZZZ have differences in their capital structures, but other than that they are pretty much alike. In this problem you will need to calculate the value of each company's Equity. Given: Company AAA: Unlevered. Annual income is tax-free. $28.6 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends. 4.1 million shares are currently being traded in the market. Each share currently sells for $75. Company ZZZ: Levered. Annual income is tax-free. $87 million is the market value of its debt. The debt has the following characteristics: neverending interest payments, 7 % interest rate. $28.6 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends.1.9 million shares are currently being traded in the market. Each share currently sells for $119.
- s Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the company can borrow at 6.2 percent interest. The company's WACC is currently 8 percent and the tax rate is 35 percent. a. What is the company's cost of equity? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity b. If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity c. If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity d-1 If the firm converts to 20 percent debt, what is the company's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC % WACC…Company AAA and Company ZZZ have differences in their capital structures, but other than that they are pretty much alike. In this problem you will need to calculate the value of each company's Equity. Given: Company AAA: Unlevered. Annual income is tax-free. $11.1 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends. 3.4 million shares are currently being traded in the market. Each share currently sells for $58. Company ZZZ: Levered. Annual income is tax-free. $59 million is the market value of its debt. The debt has the following characteristics: neverending interest payments, 5% interest rate. $11.1 million in EBIT is expected to be earned every year forever. No net income is retained, and the full amount is used to pay dividends.1.7 million shares are currently being traded in the market. Each share currently sells for $75. (Do not round intermediate calculations and enter your answer in dollars, not…Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.
- 1.Unikai company LLC have some surplus funds for a short period of time which they want to invest in some short-term securities. Which of the following is not an appropriate source for the company? a.All of these b.Commercial paper c.Equity shares d.Treasury bills 2.In Muscat SAOG company, there are 400000 shares and the management declared OMR 800000 as net profit. What would be the earning per share? a. OMR 5 b. None of the options c. OMR 4 d. OMR 2Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The firm currently has no debt, its cost of equity is 12 percent, and the tax rate is 23 percent. Assume the firm borrows $155,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)BeachFront Resorts Ltd. (BFRL) is considering moving to a totally equity financed capital structure. Currently, it carries a a debt of $165,000 borrowed @ 8% p.a. and there are 7,000 shares outstanding at a price per share of $55. BFRL expects a constant EBIT of $27,000 per year indefinitely. Taxes are absent. You own 100 shares of stock in BFRL and wish that the company sticks to its current capital structure. To maintain your earnings irrespective of the company’s decision, what should you do?