Qlink ltd is involved in manufacturing of fast -moving consumer goods.The firm is currently  an all -equity firm with 30 million  shares outstanding and stock price of Kshs.10 per share.The firm  plans to announce  that it will borrow  Ksshs.400 million and use the funds to repurchase shares. The firm will pay interest only on this debt and  has no plans to change its debt holding in future. The prevailing corporate tax rate is 30%. (i)What is the market value of the firm's  existing existing assets before  the announcement? (ii)What  is the market  value of the firm's  assets(including tax shields) just after the debt is issued but before the shares are repurchased? (iii)What is the  firm's  share price just before the share repurchase?However many shares will Qlink  Ltd repurchased? (iv) What are Qlink Ltd's  market value balance sheet and share price after share repurchase?

James is a skiing company in the Isle of man. It has 80 million shares outstanding with a market price of £32 per share and no debt. James has had consistently stable earnings and pays a 25% tax rate. Management plans to borrow €1 billion on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. Disregard any costs of financial distress for this question, i.e., you can consider they are always zero. 1. What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value before the announcement of the recapitalization? 2.What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value after the announcement of the recapitalization, but before the company issues debt? 3.What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value after…

Particulate plc is an all-equity-financed business with a market value of £35 million and a cost of capital (after tax) of 20 per cent p.a. The business intends to purchase and cancel £8 million of equity finance using the cash raised from issuing 10 per cent irredeemable loan notes. The rate of corporation tax is 30 per cent. Assuming that the assumptions of Modigliani and Miller (in a world with taxes) are correct, how will the capital restructuring affect: (a) The market value of Particulate plc; (b) Its cost of equity; and (c) Its weighted average cost of capital?

The Chief Financial Officer (CFO) of the Q14.05T Company is interested to identify the cost of capital and value of the company. Currently, the Q14.05T is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $86,198 forever, and the cost of capital is currently 14.05 percent. The corporate tax rate applicable to this company is 32.0 percent. Requirement-A. Calculate the market value of Q14.05T. Requirement-B. Suppose Q14.05T floats a $34,579 debt issue and uses the proceeds to reduce share capital. The interest rate is 10.74 percent. Calculate the new value of the business. Requirement-C. Calculate the new value of equity. Requirement-D. Calculate the cost of equity of Q14.05T after the debt issue. Requirement-E. Calculate the weighted average cost of capital.  Requirement-F. What are the implications for capital structure?

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Kennedy Limited is an all-equity publicly listed firm with 600,000 shares currently on issue trading at $20 per share and is expected to generate $1,800,000 in EBIT p.a. in perpetuity. They are considering immediately repurchasing one third their equity at the current market price and replacing this with debt with an interest cost of 4% per annum. Assume that Kennedy Limited operate in a perfect capital market with no taxes, information costs, transaction costs etc. a)                 Demonstrate the impact of the change in capital structure on the (i) Net Income, (ii) ROE and (iii) ROA for Kennedy Limited. b)                 For what value of EBIT will ROE be unaffected by Kennedy Ltd’s decision to repurchase shares?

Guam Motors is presently an all equity firm. It needs to raise $2.5m in additional funds. After raising its funds, it expects perpetual EBIT to be $600,000. The firm's unlevered cost of equity is 12% and its before tax cost of debt is 8%. 1) If there are no corporate taxes, under M-M theory what is the value of Guam Motors if it employs common stock to raise the needed funds? 2)If there are no corporate taxes and Guam Motors employs debt to raise 50% of the firm value, what is the cost of equity, the weighted average cost of capital and the value of the firm? 3) If there are no corporate taxes and M-M theory holds, will investors prefer levered firm to the unlevered firm? Why? 4)Will the presence of corporate taxes increase or decrease the firm value? Why? 5)Assume that corporate tax is 25%. What is the all equity value of Guam Motors? 6)If the corporate tax is 25% and Guam Motors employees same amount of debt as in 2) to raise part of the firm value, what is the cost of equity,the…

XYZ borrows $800 million at an interest rate of 7.6%. Prior to this borrowing, it was an all-equity firm. It expects to maintain this debt level indefinitely. XYZ pays taxes at an effective rate of 37%. By how is the market value of XYZ expected to change because of the borrowing? [Hint: Tax shield?]

(b) Iron Corporation currently has no debt on its balance sheet. Iron's marginal tax rate is 30% and the cost of debt is 7%. () If Iron were to issue sufficient debt to reduce its taxes by $100 million per year permanently, how much debt would Iron need to issue? What would be the value of the tax shield? (i) Iron plans to borrow $5 billion on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. Investors pay a tax rate of 35% on their interest income and 15% on their income from capital gains and dividends. Calculate the present value of the interest tax shield from this recapitalization from an investor's perspective.