BUS 225 DAYONE LL
17th Edition
ISBN: 9781264116430
Author: BLOCK
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter 1, Problem 14DQ
Summary Introduction
To explain:The changes that take place in restructuring, and the group that often enforces restructuring.
Introduction:
Capital restructuring:
Capital restructuring refers to a situation wherein there are changes in the capital structure of the firm. This process is performed with the aim of optimizing the profitability of the firm or due to impasses like bankruptcy, changing market trends or a financial crisis. The capital structure also includes the sale of less profitable departments.
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Students have asked these similar questions
Eccles Inc., a zero-growth firm, has an expected EBIT of $100.000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%.
If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)?
a. $475,875
b. $536,921
c. $587,750
d. $623,050
e. $564,167
Refer to the data for Eccles Inc. earlier. If the effective personal tax rates on debt income and stock income are Td = 25% and TS = 20% respectively, what is the value of the firm according to the Miller model (Based on the same unlevered firm value in the earlier question)?
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b. $536,921
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d. $623,050
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Warren Supply Inc. wants to use debt and common equity for its capital budget of $800,000 in the coming year, but it will not issue any new common stock. It is forecasting an EPS of $3.00 on its 500,000 outstanding shares of stock and is committed to maintaining a $2.00 dividend per share. Given these constraints, what percentage of the capital budget must be financed with debt?
a. 33.84%
b. 37.50%
c. 32.15%
d. 30.54%
e. 35.63%
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