Case 3 Assignment - TMX Inc.

9. Determining the optimal capital structure Aa Aa Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rd rs WACC 30% 70% 6.02% 9.40% 9.71% 40% 60% 6.75% 9.750% 9.55% 50% 50% 7.15% 10.60% 10.02% 60% 40% 7.55% 11.30% 10.78% 70% 30% 8.24% 12.80% 11.45% Which capital structure shown in the preceding table is Transworld Consortium Corp.'s optimal capital structure? Debt ratio = 70%; equity ratio = 30% Debt ratio = 40%; equity ratio = 60% Debt ratio 60%; equity ratio = 40% Debt ratio = 50%; equity ratio = 50% Debt ratio = 30%; equity ratio = 70% Consider this case: Globex Corp. currently has a capital structure consisting of 40% debt and 60% equity. However, Globex Corp.'s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 3.5%,…

Use Table 8 to answer the next two questions. Assume the committed capital is $100, the management fee is 2.00%, and the carried interest is 20.00%. Year 2015 2016 2017 2018 2019 $5.40 What is the carried interest in 2019? Called-down Paid in capital Mgmt Fees $26 $31 $21 O $11.20 $9.12 $9.85 $10 $12 Table 8 Operating NAV before Carried NAV after Results Distributions Interest Distributions Distributions -$14 $6 $11 $41 $46 $5 $10

Ch 15: Assignment - Capital Structure Decisions Back to Assignment Attempts Keep the Highest / 1 12. Managing maturity structure of debt Along with decisions about optimal debt structure, firms need to decide on the kind of maturities the debt in their capital structure should have. There are several factors that affect the choice of maturity structure. Based on your understanding of the factors associated with the choice of maturity structure, complete the following sentences: • Suppose a company bought equipment with a 10-year life. If it took a 30-year debt to finance the equipment, then it would have to pay off its debt with the cash flows generated from • A firm is likely to use short-term debt when managers expect • Secured debt is costly than unsecured debt. the value of the firm's stock.

4. Determining the optimal capital structure Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio EPS DPS Stock Price 30% 70% 1.25 0.55 36.25 40% 60% 1.40 0.60 37.75 50% 50% 1.60 0.65 39.50 60% 40% 1.85 0.75 38.75 70% 30% 1.75 0.70 38.25   Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 30%; equity ratio = 70%   Debt ratio = 40%; equity ratio = 60%   Debt ratio = 50%; equity ratio = 50%   Debt ratio = 60%; equity ratio = 40%   Debt ratio = 70%; equity ratio = 30%

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Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38%   Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30%   Debt ratio = 60%; equity ratio = 40%   Debt ratio = 40%; equity ratio = 60%   Debt ratio = 30%; equity ratio = 70%   Debt ratio = 50%; equity ratio = 50%     Consider this case: Globo-Chem Co. has a capital structure that consists of 30% debt and 70% equity. The firm’s current beta is 1.25, but management wants to understand Globo-Chem Co.’s market risk…

Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis. Debt Ratio Equity Ratio rdrd rsrs WACC 30% 70% 7.00% 10.50% 8.61% 40% 60% 7.20% 10.80% 8.21% 50% 50% 7.70% 11.40% 8.01% 60% 40% 8.90% 12.20% 8.08% 70% 30% 10.30% 13.50% 8.38%   Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure? Debt ratio = 70%; equity ratio = 30%   Debt ratio = 40%; equity ratio = 60%   Debt ratio = 30%; equity ratio = 70%   Debt ratio = 50%; equity ratio = 50%   Debt ratio = 60%; equity ratio = 40%     Consider this case: Globex Corp. is an all-equity firm, and it has a beta of 1. It is considering changing its capital structure to 60% equity and 40% debt. The firm’s cost of debt will be 8%, and…

#205 The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using the indirect method for operating activities) as a(n)   Question 205 options:   deduction from net income.   investing activity.   addition to net income.   financing activity.

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1. From the following information determine the appropriate WACC relevant for evaluating L-T Investment projects of the company: Cost of Equity AT Cost of L-T debt AT cost of S-T debt Source of Capital Equity L-T debt S-T debt 14% Book value Rs. 6,00,000 4,00,000 1,00,000 8% 5% Market Value Rs. 7,25,000 4,50,000 1,00,000

CH 3. #8 a An investment with an internal rate of return of 0.25 has the following cash flows: Time Cash flow 0 C0 1 +$8,000 2 +10,000 The value of C0 is___. b If the firm financed the investment in (a) with debt costing 0.25, the debt amortization table (using the funds generated by the investment to repay the loan) would be

If Net Worth = 14, the Market Value of Assets = 250 with duration of 8.0, the Market Value of Liabilities = 200 with duration of 3.0, the calculation for the duration of equity would equal: Group of answer choices C. 1000 B. 100 A. 10 D. 1400