You currently own 600 shares of JKL, Inc. JKL is an all-equity firm that ha hare. The company's earnings before interest and taxes are $140,000. J This debt will be used to repurchase shares of stocck. ) If the cost of equity is 25%, the WACC is 16% and cost of debt is 10%, v
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- Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company?Barry's Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company?Bargain Goods Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?
- Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?A company is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company?You currently own 1,500 shares of JKL, Inc. JKL is an all equity that has 700,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $3,500,000. You believe that the JKL should finance 50 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 9 percent interest on their debt, answer the following questions. Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 9 percent interest. Part B. How many additional shares of JKL stock must you purchase (using the borrowed funds in Part A) to create the leverage on your own?
- Barry's Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information, answer the following questions All computations must be done and shown in detail : a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think of borrowing more) b) What is the level of EBIT at which shareholders will be indifferent between the two capital structures, the one with a D/E = 0.5/1 and the other with a D/E of 1?You own 1,000 shares of a company, M&N Limited which is all-equity financed with 10,000 outstanding. The market price for each share is currently $40. M& N Limited follows a constant dividend policy, implying that it will pay the same dividend per share each year indefinitely. 4 The dividend per share is $4.50 per year. The company is debating of converting into a 60% debt capital structure by using the proceeds from debt to repurchase shares and the expected dividend per share is $5.85.The interest rate on borrowings in general is 9% per annum. Ignore taxes. (a) What is the value of your personal cash flow in M&N Limited based on the current capital structure and dividend policy of the company? (b) What is the value of your personal cash flow in M&N Limited, based on the proposed 60% debt capital structure and dividend policy of the company? How can you use homemade leverage to obtain the higher cash flow from the proposed 60% debt capital structure, if M&N Limited…
- You own 1,000 shares of a company, M&N Limited which is all-equity financed with 10,000outstanding. The market price for each share is currently $40. M& N Limited follows a constantdividend policy, implying that it will pay the same dividend per share each year indefinitely.The dividend per share is $4.50 per year. The company is debating of converting into a 60%debt capital structure by using the proceeds from debt to repurchase shares and the expecteddividend per share is $5.85.The interest rate on borrowings in general is 9% per annum. Ignoretaxes.You are required to answer the following questions: (a) What is the value of your personal cash flow in M&N Limited based on the current capitalstructure and dividend policy of the company? (b) What is the value of your personal cash flow in M&N Limited, based on the proposed 60%debt capital structure and dividend policy of the company?(c) How can you use homemade leverage to obtain the higher cash flow from the proposed…A company is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?Monroe Inc is an all-equity firm with 1,000,000 shares outstanding. It has $5,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 25%. The company is considering ng $10,000,000 of 8.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk premium is 5.0%, and the firm's beta is currently 10. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/r, because EPS = DPS.) $43.23 O$36.31 Oc$40.52 Od $30.55 $25.66
