ABC COMPANY FISCAL YEAR ENDING: 7/30/2019

ASSETS: 7,726,000,000

DEBT: 3,536,000,000

SHARES: 307,000,000

REVENUE: 7,890,000,000

EBIT: 1,405,000,000

INTEREST: 112,000,000

NET INCOME: 887,000,000

STOCK PRICE: $49.72

TAX PAID: 406,000,000

TAX RATE: 31.40%

Consider the following scenario :

The management team is considering the possibility of increasing the firms use of debt capital. They propose to implement a leverage repurchase, under which the firm would buy back 10% of the outstanding shares, issuing Long-term debt as needed to finance the transaction. Repurchase Ratio= 10% How many shares would be repurchased? Answer_______________________________

How much would the firm need to borrow to fund this purchase? (ignoring transaction cost and market price effects) ? Answer______________________________

Based on the interest rate estimated in Task #1, how much (in dollars) would this add to the annual interest expense? Answer:_______________________________________

Under this proposal, calculate the following (assuming the proposed transaction has been completed):

Shares outstanding: _________________

Debt:________________

Interest Expense:____________________

Net Income: _________________________

Earnings per share: _________________

Debt/Assets ratio:___________________

Debt/Equity ratio:____________________

Value of interest tax shield:______________

Breakeven EBIT: ______________________

How much would the proposed restructuring add to the value of the firm? Answer:________________________

Do you think the proposed restructuring should proceed? Why or why not? Answer: _________________________