Autosave Capital Structure Questions ExtraCredit (1) Paste v Home Insert New Tab Draw Page Layout Formulas Data Review View Developer Tell me X Arial 11 ' ' General 16 B a. Av === $ %) Conditional Form Formatting as Tat ASS x fx EPS B D G 1 The GoGoSA Company has no debt outstanding, and its financial position is given by the folowing data 2 3 Assets (Market Value Book Value) 3,000,000 4 EBIT $ 500,000 5 Cost of equity.rs 8% 6 Current Stock Price, PO $12 7 Current Shares Outstanding, no 250,000 8 Tax rate, T (Federal plus state) 35% 9 10 Beta 1 11 MRP 6% 12 R 2% 13 14 The firm is considering selling bonds and simutaneously repurchasing some of its stock. 15 it moves to a capital structure with 45% debt based on market values, its cost of equity, rs, will increase according to Hamada's model to reflect the ncreased risk 16 Bonds can be sold at a cost, rd, of 6% GoGoSA is a no-growth firm. Hence, alls earnings are paid out as dividends 17 Earnings and FCFs are expected to be constant over time 18 19 What effect would this use of leverage have on the value of GoGoSA? 20 Wd 21 We 22 new Beta (Lovered) - using Hamada 23 New rs (Use CAPM) 24rd 25 WACC 26 FCF (with zero growth in EBIT) 27 g 2a Vahe of operations (zero growth). V FCF/WACC 01 Q2 + Paste 1 CA HI $ %) ASS X fx EPS D B 28 Value of operatons Zero growing FCF WACC 29 30 31 32 33 b. What will be the price of GoGoSA's stock? 24 Value of Operations (V) 35 Value of Debt (D) 36 Value of Stock/Equity (S) 37 38 39 Price per share (using formula) 40 41 For new number of shares 42 Old number of shares, no 43 Shares repurchased with debt 44 New number of shares + 45 46 47 48 c. What happens to the firm's earnings per share before and after the recapitalization? 49 Before recapitalizati After recap 50 EBIT 51 Less Interest 52 EBT 53 Less, Tax (35%) 54 Net Income 55 EPS 01 02 + Text Submission