a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures.
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- Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $52,000,000 worth of long-term debt at an interest rate of 7.25% and then repurchase as many shares as possible at a price of $29 per share. Focus currently has 5,200,000 shares outstanding and expects EBIT to be $27,000,000 per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures. .. b. The earnings per share (EPS) for Focus under the current capital structure is $5.19. (Round to the nearest cent.) The…Recapitalization A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $49,000,000 worth of long-term debt at an interest rate of 7.75% and then repurchase as many shares as possible at a price of $22 per share. Focus currently has 4,900,000 shares outstanding and expects EBIT to be $25,000,000 per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures. a. The number of shares outstanding for Focus if it adopts the proposed recapitalization is The per-share price for Focus if it…A proposed recapitalization plan for Focus Corporation would change its current all-equity capital structure to leveraged capital structure. The proposal is for Focus to sell $47,000,000 worth of long-term debt at an interest rate of 6.5% and then repurchase as many shares as possible at a price of $28 per share. Focus currently has 4,800,000 shares outstanding and expects EBIT to be $27,000,000per year in perpetuity. Ignoring taxes, calculate the following: a. The number of shares outstanding, the per-share price, and the debt-to-equity ratio for Focus if it adopts the proposed recapitalization. b. The earnings per share (EPS) and the return on equity (ROE) for Focus under the current and proposed capital structures. c. The EBIT where EPS is the same for both capital structures. d. The EBIT where EPS is zero for both capital structures a) The number of shares outstanding for Focus if adopts the proposed recapitalization is _3,121,429_ shares. (round to the nearest…
- Capital Structure Analysis Pettit Printing Company (PPC) has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $12.30 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 55% (based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so g, is zero. Its current cost of equity, rs, is 14%. If it increases leverage, r, will be 16%. If it decreases leverage, r, will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not…Question1: Cybernauts, Ltd., is a new firm that wishes to finance an expansion program and determine its capital structure. It can issue 20 percent debt or 18 percent preferred stock. The total capitalization of the firm will be $6 million, and common stock can be sold at $25 per share. The company is expected to have a 50 percent tax rate. Four possible capital structures being considered are as follows: Plan Debt Preferred Common 1 20% 20% 60% 2 35 25 40 3 50 0 50 4 40 25 25 What would be the earnings per share for the four alternatives if earnings before interest and taxes are at $1.5 million?Share repurchase proposal: Currently, the firm has available capital (cash and net income) of approximately $7,000,000. There is a large block of stock available at $35 a share. For the sake of this exercise let us disregard tax implications and effects. If the firm decides to spend this amount of excess cash on a share repurchase program, how many shares will be repurchased?? What are the benefits of repurchasing shares? How will this affect the capital structure of the company? How can this be interpreted in the marketplace? Suppose the market price of the shares is $35.75 a share. Why do you think the seller of the large block would agree to see at $35 a share? Suppose the assumptions of MM are true, then what would happen to the market price of shares once the purchase of the large block at $35 a share is completed? Would it rise above $35.75, remain unchanged or fall? Would a dividend be better? Please discuss the pros and cons of dividends and share buybacks. Make a…
- Topic: Illiquidity, Synergy, Control, Book Value, Sound Value, Liquidation Value, Income Approach, and Forex Translation You are making a proposal to start a corporation that would require invested capital of P9,000,000 but will provide annual earnings of P1,500,000 every year. The capital will be from an 8%- interest, P2,500,000-face value perpetual bonds and the balance from equity requiring a rate of return of 15%. How much is the value of goodwill based on this forecast?Optimal Capital Structure with HamadaBeckman Engineering and Associates (BEA) is considering a change in itscapital structure. BEA currently has $20 million in debt carrying a rate of8%, and its stock price is $40 per share with 2 million shares outstanding.BEA is a zero-growth firm and pays out all of its earnings as dividends.The firm’s EBIT is $14.933 million, and it faces a 40% federal-plus-statetax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEAis considering increasing its debt level to a capital structure with 40% debt,based on market values, and repurchasing shares with the extra money thatit borrows. BEA will have to retire the old debt in order to issue new debt,and the rate on the new debt will be 9%. BEA has a beta of 1.0.a. What is BEA’s unlevered beta? Use market value D/S (which is the sameas wd/ws) when unlevering.b. What are BEA’s new beta and cost of equity if it has 40% debt?c. What are BEA’s WACC and total value of the firm with 40% debt?Various capital structures Charter Enterprises currently has $1.7 million in total assets and is totally equity financed. It is contemplating a change in its capital structure. Compute the amount of debt and equity that would be outstanding if the firm were to shift to each of the following debt ratios: 10%, 20%, 30%, 40%, 50%, 60%, and 90%. (Note: The amount of total assets would not change.) Is there a limit to the debt ratio's value? Calculate the capital structure below: (Round to the nearest dollar.) Equity Debt Ratio 10% $ Debt $ C
- URGENT Consider the following information for two all- equity firms, Firm Attrex and Firm Maliwan: Attrex Maliwan Shares 4800000 175000 outstanding Marketprice 30.83 371.43 per share Attrex estimates that the value of the synergistic benefit from acquiring Maliwan is yearly positive Cash Flow of $1,085,000 in perpetuity. Maliwan has indicated that it would accept a cash purchase offer of $525.715 per share. Attrex is thinking about offering 38% of their shares in exchange. How should Attrex proceed?Q.An all-equity company is considering borrowing $10,000,000 and using the borrowed funds to repurchase shares. The company's cost of equity is 9%. EBIT is expected to be $3,600,000 every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. If the company proceeds with the capital restructing, what will be the value of the company according to M&M Proposition I without taxes?Optimal Capital Structure with Hamada Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firm’s EBIT is $14,933 million, and it faces a 40% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 6%. BEA is considering increasing its debt level to a capital structure with 40% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9%. BEA has a beta of 1.0. What is BEA’s unlevered beta? Use market value D/S (which is the same as wd/ws when unlevering. What are BEA’s new beta and cost of equity if it has 40% debt? What are BEA’s WACC and total value of the firm with 40% debt?