ABC Corporation has total assets of $3,750,000 and total liabilities of $1,500,000. The company needs to raise $2,000,000 for new equipment purchases. They are considering either issuing 15-year bonds or selling 150,000 shares of common stock at an estimated market price of $13.33 per share. Calculate the debt-equity ratio before any financing decision is made.
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- PQR Corporation is considering the following alternative plans of financing for raising$4,000,000: The following additional information is available for PQR Corporation: Earnings before bond interest and income taxes (EBIT) are $9,000,000. The tax rate is 35%. All bonds or stocks are issued at their par values. Interest is payable at the end of each year. Required: Which plan should company choose & why (i.e. Explain the rationale behind selecting the plan)? Provide all the detailed calculations.River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $300,000 of debt at an interest rate of 12% and use the proceeds to repurchase 30,000 shares at $10 per share. Profits before interest are expected to be $130,000. What is the ratio of price to expected earnings for River Cruises before it borrows the $300,000? What is the ratio after it borrow?can you please solve this
- Sheaves Corp. has a debt-equity ratio of .85. The company is considering a new plant that will cost $120 million to build. When the company issues new equity, it incurs a flotation cost of 9 percent. The flotation cost on new debt is 4.5 percent. What is the weighted average flotation cost if the company raises all equity externally? (Enter your answer as a percent and round to two decimals.) Flotation Cost What is the initial cost of the plant if the company raises all equity externally? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) Initial cash flow What is the initial cost of the plant if the company typically uses 65 percent retained earnings for equity financing? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole dollar amount, e.g., 32.) Initial…On January 1, 2009 the total assets of the Shipley Company were $ 180 million. During theyear, the company plans to raise and invest $ 90 million. The firm's present capital structure isconsidered optimal.Assume that there is no short term debt. Long term debt 90,000,000Common Equity 90, 000, 000 Total Liabilities and Equity 180,000,000 New bonds will have acoupon rate of 10% and will sell at par. Common stock,currently selling at $ 40 a share canbe sold to net the company at$36 a share. Stockholders' required rate of return is 12%. (The next expected dividend is $1.60). Retained earnings are estimated to be $9 million.Thetax rate is 40%. a. To maintain the present capital structure, how much of the capitalbudget must Shipley finance by equity? b. How much of the new equity funds needed mustbe generated internally?Externally?c. Calculate the cost of each of the equity components. d.Calculate the weighted average cost of capital.Hancock Corp has the following operating results and capital structure. The firm is contemplating a capital restructuring to 60% debt. Its stock is currently selling for book value at $25 per share. The interest rate is 9%, and combined state and federal taxes are 42%. Show all of your calculation work and label all of your work so I can follow your calculation process. 1. Complete current income statement and balance sheet and income statement under proposed capital structure. 2. Calculate EPS under the current and proposed capital structures. 3. Calculate the DFL under both structures. Current ProposedINCOME STATEMENT Revenue $6,000,000 $6,000,000 Cost/Expense 4,500,000 4,500,000EBIT $1,500,000 1,500,000 Interest (9%) EBT Tax (42%) EAT (Net Income) BALANCE SHEET Debt $1,200,000…
- The board of directors of LuvMe Publishing Haus has commissioned a capital structure study. The company has a total assets of P59 million. It has earnings before interest and taxes (EBIT) of P9.0 million and is taxed at 25%. The stock has a book value of P25 per share. Additional information follows: Percentage of Debt Cost of Debt Required Rate of Return 0% 0% 10.0% 20% 8.5% 10.9% 30% 9.5% 11.5% 60% 15.0% 16.5% Based on the above information using the debt ratio given, prepare the schedule to answer the following: Earnings per share (EPS) Return on Equity (ROE) Price - Earnings ratioDubai Corporation manufactures construction equipment. It is currently at its target debt– equity ratio of .70. It’s considering building a new $45 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $6.2 million a year in perpetuity. The company raises all equity from outside financing. There are three financing options: A new issue of common stock: The flotation costs of the new common stock would be 8 percent of the amount raised. The required return on the company’s new equity is 14 percent. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 8 percent, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio…Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 75. It's considering building a new $41 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.3 million in perpetulty. The company raises all equity from outside financing. There are three financing options: 1. A new issue of common stock. The flotation costs of the new common stock would be 7.1 percent of the amount raised. The required return on the company's new equity is 15 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 2.7 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5.7 percent, they will sell at par. 3. Increased use of accounts payable financing. Because this financing is part of the company's ongoing daily business, it has no flotation costs and the company assigns it a cost that is the same as the overall firm WACC.…
- Shinedown Company needs to ralse $55 million to start a new project and will ralse the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 65 percent common stock, 15 percent preferred stock, and 20 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 8 percent, and for new debt, 5 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round Intermedlate calculations and enter your answer In dollars, not mlllons, rounded to the nearest whole number, e.g., 1,234,567.) Initial costNikulBroom Co. has a total debt of $420,000 and shareholders’ equity of $700,000. Broom is seeking capital to fund an expansion. Broom is planning to issue an additional $300,000 in common stock, and is negotiating with a bank to borrow additional funds. The bank is requiring a debt-to-equity ratio of 0.75. what is the maximum additional amount Broom will be able to borrow?
