The Company is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, The Company would have 431,811 shares of stock outstanding. Under Plan II, there would be 307,915 shares of stock outstanding and $4.9 million in debt outstanding. The interest rate on the debt is 8.66 percent, and there are no taxes. The breakeven EBIT is $

The Company is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, The Company would have 431,811 shares of stock outstanding. Under Plan II, there would be 307,915 shares of stock outstanding and $4.9 million in debt outstanding. The interest rate on the debt is 8.66 percent, and there are no taxes. The breakeven EBIT is $

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Kay Corp is comparing 2 different capital structure. Plan I would in 7,000 shares of stocks and RM160,000 in debt. Plan II would result in 5,000 shares of stock and RM240,000 in debt. The interest rate on the debt is 10%. a) Assuming that the corporate tax rate is 40%. Calculate the break-even levels of EBIT and state the reasons. b) Ignoring taxes what is the price per share of equity under Plan I? Plan II? What principles is illustrated by your answer?
The Company is comparing two different capital structures, an all - equity plan (Plan I) and a levered plan (Plan II). Under Plan I, The Company would have 405, 053 shares of stock outstanding. Under Plan II, there would be 337, 151 shares of stock outstanding and $5.9 million in debt outstanding. The interest rate on the debt is 9.05 percent, and there are no taxes. The breakeven EBIT is $
a) Table below shows the simplified balance sheet information for Jess Elton Enterprise. The debt has just been refinanced at an interest rate of 6% (short term) and 8% (long term). The expected rate of return on the company's shares is 15%. There are 7.46 million shares outstanding, and the shares are trading at $46. The tax rate is 35%. Calculate this company's weighted-average cost of capital (WACC) based on the market weighted scheme. 1,500 Short-term debt 75,600 Cash and marketable securities Accounts receivable Inventory Current assets Property, plant, and equipment Other assets Total 120,000 Accounts payable 125,000 Current liabilities 246,500 302,000 Long-term debt 89,000 Shareholders' equity 637,500 Total 62,000 137,600 208,600 637,500 246,300 b) Discuss the different funding strategies a company may follow in order to finance its cumulative working capital requirements.
Coldstream Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent. a. Assuming that the corporate tax rate is 40 percent, compare both of these plans to an all-equity plan assuming that EBIT will be $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) EPS Plan I $ Not attempted Plan II $ Not attempted All equity $ Not attempted d-2 Assuming that the corporate tax rate is 40 percent, what are the break-even levels of EBIT for each plan as compared to that for an all-equity plan? (Do not round intermediate calculations.) EBIT Plan I and all-equity $ Not attempted Plan II and all-equity $ Not attempted…
A company finances its operations with 57 percent debt and the rest using equity. The annual yield on the company's debt is 6% and the required rate of return on the stock is 14.6%. What is company's WACC? Assume the tax rate is 30%
c) Calculate the cost of ordinary shares for each capital structure.
Do not use chatgpt.
SodaFizz has debt outstanding that has a market value of $3 million. The company’s stock has a book value of $2 million and a market value of $6 million. What are the weights in SodaFizz’s capital structure?
Farmington Company can borrow at 7.05 percent. The company currently has no debt and the cost of equity is 11.45 percent. The current value of the firm is $660,000. The corporate tax rate is 23 percent. What will the value be if the company borrows $375,000 and uses the proceeds to repurchase shares?
ABC Inc. borrows money at 9%, sells bonds at 8%, and the purchasers of common stock require 13% rate of return. If the company has borrowed $40 million, sold $60 million in bonds, and sold $100 million worth of common stocks, what is the Weighted Average Cost of Capital (WACC)? If the same company from the previous question used 5% ROR for loans, 9% ROR for bonds, and 12% ROR for stocks, and also used a 50% tax rate, what is the WACC?
e. Kecewa Berhad is planning a RM50,000 expansion. The expansion is to be financed by RM20,000 debt and RM30,000 common stock. The before-tax cost of debt is 9% and the cost of common stock is 14%. If the corporate tax is 40%. Determine the Weighted Average Cost of Capital (WACC) for Kecewa Berhad.
Target Corporation (TGT) has $2.14 million in assets that are currently financed with 100% equity. TGT’s EBIT is $385,000, and its tax rate is 25%. If TGT changes its capital structure to include 50% debt, its return on equity will increase. Assume the interest rate on debt is free. (justify your answer with numerical calculation) True False

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