Break-even EBIT (with taxes). Beta, Gamma, and Delta Companies are similar in every way except for their capitalstructures. Beta is an all-equity firm with $3,600,000 of value and 100,000 shares outstanding. Gamma is a leveredfirm with the same value as Beta, but $1,080,000 in debt at 9% and 70,000 shares outstanding. Delta is a levered firmwith the same value as both Beta and Gamma with $2,160,000 in debt at 12% and 40,000 shares outstanding. Whatare the break-even EBITS for Beta and Gamma, Beta and Delta, and Gamma and Delta Companies if the corporate taxrate is 40% for all three companies?What is the break-even EBIT for Beta and Gamma companies?S(Round to the nearest dollar.)

In the scenario provided:Beta is the all-equity firm.Gamma is the levered firm with $1,080,000 in…

Answered: Break-even EBIT (with taxes). Beta,…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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Consider two firms that are identical in every respect EXCEPT for their capital structures. The unlevered firm is financed entirely by equity whereas the capital structure of the levered firm includes $30,000 of debt at 12%.The annual earnings of both companies before interest are the same, $10,000. The cost of equity in the unlevered firm is 15% and in the levered company at 16%. A) Determine the market values of the two companies. B) Suppose an investor owns 1% of the equity in the levered firm, describe the arbitrage process.
Qwert Typewriter Company and Yuiop Typewriters SAOG are identical except for capital structures. Qwert has 50 % debt and 50 % equity financing, whereas Yuiop has 20 % debt and 80 % equity financing. The borrowing rate for both companies is 13 % in a no-tax world and capital markets are assumed to be perfect. The earnings of both companies are not expected to grow, and all earnings are paid out to shareholders in the form of dividends.) a) If you own 2 % of the common stock of Qwert, what is your OMR return if the company has net operating income of OMR 360,000 and the overall capitalization rate of the company, Ko is 18 %? What is the inferred equity capitalization rate, ke? b) Yuiop has the same net operating income as Qwert. What is the inferred equity capitalization rate of Yuiop? Why does it differ from that of Qwert?
Can i please get help with this practice question.
Two firms, Candy and Yelpful, have identical assets and generate identical cash flows. Candy is an all-equity firm with 1 million shares outstanding that trade at a price of $25 per share. Yelpful has 5 million shares outstanding and $10 million in debt at an interest rate of 4%. According to MM Proposition I, the stock price for Yelpful is closest to: a. $15 b. $3 c. $5 d. $25
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The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
An unlevered firm, U, operates in a perfect market and has a net operating income of GHC250,000.00 and required rate of return on assets for firms in the industry is 12.5%. The firm issues GHC1,000,000.00 worth of debt with a required return of 5% and uses the proceeds to repurchase outstanding shares. The firm U operates in a perfect market without corporate or personal taxes. Required: 1.Estimate the market value and required return of th firm’s shares before the repurchase transaction 2. Estimate the market value and required return of the firm’s remaining shares after the repurchase transaction
1.
Delta Corporation has the following capital structure: Debt (d) Preferred stock (Kp) Common equity (K) (retained earnings) Weighted average cost of capital (Kg) Capital structure size (X) Cost (aftertax) million 6.6% 11.2 11.2 Weights 20% 10 70 Weighted Cost a. If the firm has $49 million in retained earnings, at what size capital structure will the firm run out of retained earnings? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10". 4 1.32% 1.12 7.84 10.28% b. The 6.6 percent cost of debt referred to earlier applies only to the first $23 million of debt. After that the cost of debt will go up. At what size capital structure will there be a change in the cost of debt? Note: Enter your answer in millions of dollars (e.g., $10 million should be entered as "10",
Kaye’s Kitchenware has a market/book ratio equal to 1. Itsstock price is $12 per share and it has 4.8 million shares outstanding. The firm’s total capital is $110 million and it finances with only debt and common equity. What is itsdebt-to-capital ratio?
Suppose Rocky Brands has earnings per share of $2.35 and EBITDA of $30.8 million. The firm also has 5.8 million shares outstanding and debt of $130.7 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 13.3 and an enterprise value to EBITDA multiple of 7.6, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate? Rocky Brands' stock price per share by using the P/E ratio is $ per share. (Round to two decimal places.)

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