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 firm’s 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? _______________________________
How much would the firm need to borrow to fund this purchase? (ignoring transaction cost and market price effects) ? ______________________________
Based on the interest rate estimated in Task #1, how much (in dollars) would this add to the annual interest expense? _______________________________________
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? ________________________
Do you think the proposed restructuring should proceed? Why or why not?________________________n