Global Manufacturing Solutions is planning a significant expansion. The company currently has: Total Assets: $2,800,000 • Total Liabilities: $1,100,000 The company needs to raise $1,200,000 for purchasing new manufacturing equipment and land. Financing Options • Issue 20-year corporate bonds Sell additional common stock at $12 per share
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- A company is planning the financing of a major expansion. It will use common stock to fund this expansion. The company currently has 300,000 shares outstanding selling at an average of $130 per share. It would sell an additional 50,000 shares to bring in an estimated $5 million. The new project is expected to raise EBIT by 18% when implemented. The company’s capital structure contains long-term debt of $10 million which pays interest of 11%. Current Income Statement Net Sales 66,000,000 COGS 42,000,000 Gross Profits 24,000,000 S and A Expenses 9,300,000 Operating Profits 14,700,000 Interest on Debt 1,100,000 EBT 13,600,000 Taxes at 34% 4,600,000 EAT 9,000,000 Develop an analysis of EPS and show the effect of any dilution of earnings. Develop the same analysis for an alternative issue of $5 million of 10% preferred stock, and an alternative issue of $5 million of 9% debt. Develop specific comparative costs of all…ans in txt formThe SeaFair Hotel is considering adding a new addition to the hotel in the near future. The cost of adding this is projected to be $10,000,000. The board of directors has determined that their current capital structure is the optimum, consisting of 40% common equity ( 20 % internal, 20% external), 20% preferred stock and 40% debt. SeaFair Hotel has $2,000,000 in retained earnings to help finance this project. Additional information regarding this project is as follows: SeaFair Hotel's bonds have a face value of $1,000 and offer a 6% coupon rate, maturing in 15 years. The issuance cost per bond is $91.13 each Preferred stock is selling at $30 per share with a $3 per share issuance cost. The preferred stock offers a $5 per share annual dividend. Common stock is selling at $35 per share and has an issuance cost of $5 per share. The dividend for next will be $4 and will grow at 3% annually thereafter. SeaFair Hotel marginal tax rate is 40%. The owners of SeaFair Hotel expects to earn at…
- Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of 64. It's considering building a new $65.4 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.93 million in perpetuity. There are three financing options: a. A new issue of common stock. The required return on the company's new equity is 15.4 percent. b. A new issue of 20-year bonds. If the company issues these new bonds at an annual coupon rate of 7.5 percent, they will sell at par. c. Increased use of accounts payable financing. Because this financing is part of the company's ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC, Management has a target ratio of accounts payable to long-term debt of 12. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 24 percent, what is the NPV of the new plant? Note: A negative answer…Landman Corporation (LC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .78. It’s considering building a new $66.8 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.93 million in perpetuity. There are three financing options: A new issue of common stock: The required return on the company’s new equity is 15.2 percent. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.1 percent, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .10. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 23 percent, what is the NPV of the new plant? Note: A negative answer should…Vijay
- MansukABC Inc. has a the capital structure shown below. Liabilities Stockholders' Equity $122,099,000 $95,228,000 ABC Inc. will raise additional capital for new projects this year, in the amount of $44,978,000. The firm believes, however, that a capital structure with 56.25% debt is ideal. The firm will be able to issue new discount bonds at a price of $909 with a yield-to-maturity of 3%. Assuming they want to change their capital structure to the new target, how many new bonds will the firm need to issue? unur answer to the nearest bond.Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning to launch a project that will requires an investment of $745 000 next year. Today the company’s stock has market value of $22/share. Lily Fashion House has the current capital structure of 60% in equity and 40% in debt. Required: The company is paying a cash dividend of $4.50/share plus an extra-cash dividend of $1.5/share. Tomorrow the stock will go ex-dividend. Explain why there is ex-dividend date and ex-dividend price? Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 25%? How much dividend Lily Fashion House can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies? Floral Textile Ltd. is a daughter company of the Lily Fashion House Group and currently under a liquidation plan due to severe business contraction caused by the COVID 19 pandemic. The company plans to pay total…
- Retlaw Corporation (RC) manufactures time-series photographic equipment. It is currently at ts target debt-equity ratio of 074 its considering building a new 548 million manufacturing facility. This new plant is expected to generate sher-tax cash flows of $4 milion in perpetuity. 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% of the amount raised. The required retur on the company's new equity is 14% 2 A new issue of 20-year bonds The flotation costs of the new bonds would be 4% of the proceeds. If the company issues these new bonds at an annual coupon rate of 80%, 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 fotation costs, and the company assigns it a cost that is the same as the overall frm WACC Management has a target ratio of accounts payable to…Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .66. It’s considering building a new $65.6 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.45 million in perpetuity. There are three financing options: a. A new issue of common stock: The required return on the company’s new equity is 15.2 percent. b. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.1 percent, they will sell at par. c. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .12. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 21 percent, what is the NPV of the…You hold a 25% common stock interest in YouOwnIt, a family-owned construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of 26,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows: Plan 1.Issue 26,000,000 of 20-year, 8% notes at face amount Plan 2.Issue an additional 550,000 shares of 10 par common stock at 20 per share, and 15,000,000 of 20-year, 8% notes at face amount The balance sheet as of the end of the previous fiscal year is as follows: Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from 2,667,000 in the previous year to 5,000,000 for this year. Your sister has asked you, as the company treasurer, to prepare an analysis of each financing plan. 1. Prepare a table indicating the expected earnings per share on the common stock under each plan. Assume an income tax rate of 40%. Round to the nearest cent. 2. a. Discuss the factors that should be considered in evaluating the two plans. b. Which plan offers greater benefit to the present stockholders? Give reasons for your opinion.
