Question: Barette Consulting currently has no debt in its capital structure, has $500 million of total assets, and its basic earning power is 15%. The CFO is contemplating a recapitalization where it will issue debt at a cost of 10% and use the proceeds to buy back shares of the company's common stock, paying book value. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain unchanged. Which of the following is most likely to occur as a result of the recapitalization? a. The ROA would remain unchanged. b. The basic earning power ratio would decline. c. The basic earning power ratio would increase. d. The ROE would increase. e. The ROA would increase.

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Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.

The Klaven Corporation has operating income (EBIT) of $750,000. The company’s depreciation expense is $200,000. Klaven is 100 percent equity financed, and it faces a 40 percent tax rate. Assume that the firm has no amortization expense.  What are its net income, its net cash flow, and its operating cash flow?

The Chief Financial Officer (CFO) of the Q14.05T Company is interested to identify the cost of capital and value of the company. Currently, the Q14.05T is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $86,198 forever, and the cost of capital is currently 14.05 percent. The corporate tax rate applicable to this company is 32.0 percent. Requirement-A. Calculate the market value of Q14.05T. Requirement-B. Suppose Q14.05T floats a $34,579 debt issue and uses the proceeds to reduce share capital. The interest rate is 10.74 percent. Calculate the new value of the business. Requirement-C. Calculate the new value of equity. Requirement-D. Calculate the cost of equity of Q14.05T after the debt issue. Requirement-E. Calculate the weighted average cost of capital.  Requirement-F. What are the implications for capital structure?

You are given the financial information for the Unic Company: Earnings Before Interest and Tax (EBIT) = $126.58 Corporate tax rate (TC) = 0.21 Debt (D) = $500 Unlevered cost of capital (RU) = 0.20 The cost of debt capital is 10 percent. Question: Determine the value of Unic Company equity? Determine the cost of equity capital for Unic Company? Determine the WACC for Unic Company?

XYZ Ltd., experts a net income of $150,000. The company has 10% of 500,000 debentures. The equity capitalization rate of the company is 10%. (a) Calculate the value of the firm and overall capitalization rate according t the net income approach (ignore income tax). (b) If the debenture debt is increased to $750,000 and interest of debt is change to 9%. What is the value of the firm and overall capitalization rate?

Currently, the Bright Ltd is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $73,084 forever, and the cost of capital is currently 14.16 percent. The Chief Financial Officer (CFO) of the Bright Ltd Company is interested to identify the cost of capital and value of the company. The corporate tax rate applicable to this company is 34.0 percent. A). Calculate the market value of Bright Ltd. Round your answer to 2 decimal points.  B). Suppose Bright Ltd floats a $30,397 debt issue and uses the proceeds to reduce share capital. The interest rate is 9.75 percent. Calculate the new value of the business. Round your answer to 2 decimal points.  C). Calculate the new value of equity. Round your answer to 2 decimal points.

The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT = $600,000Growth rate in EBIT gL = 0% Cost of equity, rs = 10%Shares outstanding, n0 = 200,000 Tax rate, T (federal-plus-state) = 25% a. What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share?b.  . 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 th amount of debt?c. Based on the new capital structure, what is the new stock price? What is the remain-ing number of shares? What is the new earnings per share?

Referring to table below, calculate the market value of firm L (without a corporate income tax) if the equity amount in its capital structure decreases to $5,000 and the debt amount increases to $5,000. At this capital structure, the cost of equity is 15 percent. Round your answer to the nearest dollar.     Firm U Firm L   Net operating income (EBIT)   $ 1,000   $ 1,000     Less: Interest payments to debt holders, I     -     100     Income available to stockholders (dividends), D   $ 1,000   $ 900     Total income available to security holders, I + D   $ 1,000   $ 1,000     Required rate of return on debt, kd     -     5 %   Market value of debt, B = I/kd     -   $ 2,000     Required rate of return on equity,ke     10 %   11.25 %   Market value of equity, E = D/ke   $ 10,000   $ 8,000     Market value of firm, E + B   $ 10,000   $ 10,000                       $