1. Find a company that file for Chapter 11 bankruptcy in the last 10 years. Explain the circumstances that cause the firm to file and what the result was. Be sure to include all relevant financials. What were the impacts on investors?

2. From attach file need answersput in excel format.

Wk 7: Ch22, Ch23 Chapter 22: Problems 1, 2, 3 (22-1) FCF1 = 2.00(1.05) = $2.1 million; g = 5%; b = 1.4; rRF = 5%; RPM = 6%; wd = 30%; T = 40%; rd = 8% rs = rRF + RPM(b) = 5% + 6%(1.4) = 13.4%. WACC = wdrd(1-T) + wsrs = 0.30(8%)(0.60) + 0.70(13.4%) ### FCF0 (1 g ) WACC g Vops = $2.1 0.1082 0.05 = Vops = 36.08 million VS = Vops - debt = 36.08 - 10.82 = $25.26 million Price = 25.26 million / 1 million shares = $25.26 / share. (22-2) FCF1 = $2.5 million FCF2 = $2.9 million FCF3 = $3.4 million g = 5% b = 1.4 rRF = 5% RPM = 6% wd = 30% T = 40% rd = 8% Horizon Value3 = FCF3(1+g)/(WACC - g) = = 3.4 (1.05)/(.1082 - 0.05) $61.34 million Tax shields in years 1 through 3 are: TS1 = TS2 = TS3 = Interest x T = = 1,500,000 x 0.40 600,000 FCF + Tax Shield + Horizon Value Year 1: 2.5 million + 600,000 = 3.1 million Year 2: 2.9 million + 600,000 = 3.5 million Year 3: 3.4 million + 600,000 + 61.34 million = 65.34 million The unlevered cost of equity based on the pre-merger required rate of return and pre-merger capital structure is: rsU = = wdrd + wsrsL 0.30(8%) + 0.70(13.4%) 11.78% The present value of the FCFs, the tax shields, and the horizon value at the unlevered cost of equity is: 3.1 3.5 65.34 2 1.1178 (1.1178) (1.1178) 3 Vops = Tax shields = $52.36 million Equity value = = Equity Value = Vops - Debt 52.36 million - 10.82 million $41.54 million per share (22-3) The range of possible prices that Hastings could bid for each share are between $25.26 and $41.54. Chapter 23: 3, 4, 5 (23-3) Futures contract settled at 100 16/32% of $100,000 contract value. PV = 1.005 $1,000 = $1,005 100 bonds = $100,500. Calculation of Rate: Nper = PMT = PV = FV = Rate = 40 30 -1,005 1000 2.9784% per period or 5.9569% per year 1% interest rates increased is 6.9569% Rate = 6.9569%/2 = Nper = PMT = FV = PV = 3.48% 40 30 1000 $-897.48 Total present value = $897.48 x 100 = $89,748.42 (23-4) Floating rate: Fixed rate: LIBOR + Payment to lender: Payment to swap counterparty: Payment from swap counterparty: Net payment: Carter Brence 2.00% 3.10% 10.00% 11.00% -LIBOR Carter 2.00% 7.95% Brence 11.00% -LIBOR +LIBOR -7.95% 9.95% -LIBOR 3.05% Carter's net payment is less than 10%, which issues at fixed rate. The swap is also good for Carter but on the other side; Brence's net payment is less than the rate which issued at floating rate LIBOR + 3.1%. Now, I can say the swap is good for Brence. (23-5) a. In this situation, the firm would be hurt if interest rates were to rise by June, so it would use a short hedge, or sell future Since futures maturing in June are selling for 95 17/32 if par, and 1 contract is equal to $100,000 in Treasury bonds, the firm must sell 105 contracts to cover the planned 10,000,000 June bond issue (10,000,000/95.531.25 = about 105). Should interest rates rise by June, Zinn Company will be able to repurchase the futures contracts at a lower cost, which w at the higher interest rate. Thus, the firm has hedged against rising interest rates. b. The firm would now pay 13 percent (discount rate) on the bonds. With an 11 percent coupon rate, the bond issue would N = 40; I = 13/2 = 6.5; PMT = 0.11/2 10,000,000 = 550000; FV = 10000000; and solve for PV = $8,585,447.31. The firm would lose $10,000,000 $8,585,447.31= $1,414,552.69 on the bond issue. However, the firm will make money on its futures contracts. The implied yield at the time the futures contracts were entered is found by inputting: N = 40; PMT = 3000; FV = 100000; PV = -95531.25; solving for I/YR = 3.199616% per six months. The nominal annual yield is 2(3.199616%) = 6.399232%. (Note that the futures contracts are on hypothetical 20-year, 6 percent semiannual coupon bonds which are yielding 6.399 Now, if interest rates increased by 200 basis points, to 8.399232%, the value of each futures contract will drop to $76,945.5 N = 40; I = 8.399232/2 = 4.199616; PMT = 3000; FV = 100000; and solving for PV = $76,945.56. The value of all of the futures contracts will drop to $76,945.56*105 = $8,079,283.80. Since Zinn Company sold the futures contracts for $95,531.25*105 = $10,030,781.25 and will, in effect, buy them back at $ the firm would make a $10,030,781.25 - $8,079,283.80 = $1,951,497.45 profit on the transaction ignoring transaction cost Finally, the firm gained $1,951,497.45 on its futures position, but lost $1,414,552.69 on its underlying bond issue. On net, it gained $1,951,497.45 - $1,414,552.69 = $536,944.76. c. In a perfect hedge, the gains on futures contracts exactly offset losses due to rising interest rates. For a perfect hedge to exist, the underlying asset must be identical to the futures asset. Using the Zinn Company example, a futures contract must have existed on Zinn's own debt (it existed on Treasury bonds) for the company to have an opportunity to create a perfect hedge. In reality, it is virtually impossible to create a perfect hedge, since in most cases the underlying asset is not identical to the futures asset. capital structure is: a short hedge, or sell futures contracts. ,000 in Treasury bonds, 00/95.531.25 = about 105). acts at a lower cost, which will help offset their loss from financing n rate, the bond issue would bring in only $8,585,447.31: V = $8,585,447.31. nds which are yielding 6.399232%.) ntract will drop to $76,945.56 calculated as follows: n effect, buy them back at $8,079,283.80, on ignoring transaction costs. erlying bond issue