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 adopts the proposed recapitalization is $ The debt-to-equity ratio for Focus if it adopts the proposed recapitalization is b. The earnings per share (EPS) for Focus under the current capital structure is $ The earnings per share (EPS) for Focus under the proposed capital structure is $ The return on equity (ROE) for Focus under the current capital structure is The return on equity (ROE) for Focus under the proposed capital structure is c. The EBIT where EPS is the same for both capital structures is $ d. The EBIT where EPS is zero for both capital structures is $ shares. (Round to the nearest whole number.) (Round to the nearest dollar.) (Round to two decimal places.) (Round to the nearest cent.) (Round to the nearest cent.) %. (Round to two decimal places.) %. (Round to two decimal places.) (Round to the nearest dollar.) (Round to the nearest dollar.)

Integrative-Optimal capital structure Medallion Cooling Systems, Inc., has total assets of $10,200,000, EBIT of $2,000,000, and preferred dividends of $197,000 and is taxed at a rate of 40%. In an effort to determine the optimal capital structure, the firm has assembled data on the cost of debt, the number of shares of common stock for various levels of indebtedness, and the overall required return on investment: Capital structure debt ratio 0% 15 30 45 60 Debt Ratio EBIT Less: Interest EBT Taxes @40% Net profit Less: Preferred dividends EPS Profits available to common stockholders # shares outstanding a. Calculate earnings per share for each level of indebtedness. b. Use the equation Po EPS/r, and the earnings per share calculated in part (a) to calculate a price per share for each level of indebtedness. c. Choose the optimal capital structure. Justify your choice. a. Calculate earnings per share for each level of indebtedness. Calculate the EPS below: (Round to the nearest dollar.…

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What is required return on Green's equity after the restructuring?

WACC Estimation On January 1, the total market value of the Tysseland Company was $60 million. During the year, the company plans to raise and invest $10 million in new projects. The firm's present market value capital structure, here below, is considered to be optimal. There is no short-term debt. Debt Common equity Total capital $30,000,000 30,000,000 $60,000,000 New bonds will have a 6% coupon rate, and they will be sold at par. Common stock is currently selling at $30 a share. The stockholders' required rate of return is estimated to be 12%, consisting of a dividend yield of 4% and an expected constant growth rate of 8%. (The next expected dividend is $1.20, so the dividend yield is $1.20/$30 = 4%.) The marginal tax rate is 25%. a. In order to maintain the present capital structure, how much of the new investment must be financed by common equity? Round your answer to the nearest dollar. $ b. Assuming there is sufficient cash flow for Tysseland to maintain its target capital…

QUESTION 1: Westjet Limited is considering building a new manufacturing plant to produce wjets on the land it bought 10 years ago for $5,000,000. The land is currently appraised at 15,000,000. The construction cost of the plant will be $50,000,000. The following market data on the Westjet Limited is current: Common Stock: 2,000,000 shares, selling for $100 each; the beta is 1.5 Debt: 100,000 7% annual coupon bonds, 20 years to maturity, selling for 111.47% of par value. The bonds have $1000 par value each. 1,000,000 shares of 3.5% preferred stock outstanding, selling for $70 per share. Par value is $100 each. Preferred Stock: Expected return on the market 8%, the risk free rate of return is 3%, and the corporate tax rate is 40%. An initial investment of $10,000,000 in net working capital is required. a. Determine the weighted average cost of capital. b. The plant will have 25 years life, will be depreciated straight line, and will have zero salvage value after 25 year. Land will be…

ABC Investments Inc. is currently managing a capital structure that includes a $3.5 million debt with an interest rate of 12.3%. The company is planning a $5 million expansion initiative and is evaluating five financing alternatives: Plan 1 2 3 4 Debt 0% 35% 50% 50% Preferred 0% 0% 0% 20% Equity 100% 65% 50% 30% 20% 5 60% 20% The preferred stock carries a 12% dividend rate, and the common stock is priced at $18 per share. Currently, the company has 750,000 shares of common stock outstanding and operates in a 40% tax bracket. a. If the earnings before interest and taxes are $1.5 million, what would be earning per share for five alternatives, assuming no immediate increase in the operating profit. b. Compute the degree of financial leverage (DFL) for each alternatives at the expected EBIT level of $1.5 million. c. Which alternative do you prefer and why?