Congratulations! Due to the ongoing conditions in the marketplace, you've been hired in the finance department of OFFICE CLEANING and WATE Fortunately (or unfortunately) you already have a task to help the team, and the whole organization Due to your understanding of financial knowledge in general (or at least the fact that your resume says so!), you've been assigned to work on a task for the company. Your owner has financed everything out of his pocket, but is terrified of giving away too much equity in the company. They're expecting growth to explode next year, so the strategy is to bring on new debt to finance operations. At the same time, your manager is afraid of taking on debt because then it will be harder to pay the bills every month with more liabilities going out the door. Using the information below, run through the hypothetical scenario of taking on debt, and then recommend whether you would or would not take on the debt. (HINT: You are going to be calculating the WACC to show whether your costs of capital will increase or decrease!) If the firm accepts the debt proposal, then the following are the details of the bonds: Number of years: 10 Type: Annual Coupon Rate 6% Current Bond Price 650 Number of bonds issued 800 *Assume Par Value is 1,000 Current Information: Proposed Changes: WACC Before Debt) WE R E WD RD Equity: Equity: Shares 25,000 Shares 25,000 WACC Share Value 120.00 Share Value $ 120.00 Beta 1.35 Beta 1.35 WACC After Debt WEREWDRD WACC Debt: (Annual Bonds) Bonds Outstanding Issuing Price Years to Maturity Coupon Rate Par Value Yield to Maturity Corporate Tax Rate Debt: (Annual Bonds) O Bonds Outstanding 0 Issuing Price 0 Years to Maturity O Coupon PMT O Par Value O Yield to Maturity 40% Corporate Tax Rate 40% Take on Debt? (Yes) (No) Current Market Info: Treasury Bill Yield Expected Market Return Current Market Info: 3.85% Treasury Bill Yield 7.95% Expected Market Return 3.85% Why? 7.95% CAPM CAPM Total Equity Cap Total Debt Cap Total Equity Cap Total Debt Cap Congratulations! Due to the ongoing conditions in the marketplace, you've been hired in the finance department of OFFICE CLEANING and WATE Fortunately (or unfortunately) you already have a task to help the team, and the whole organization Due to your understanding of financial knowledge in general (or at least the fact that your resume says so!), you've been assigned to work on a task for the company. Your owner has financed everything out of his pocket, but is terrified of giving away too much equity in the company. They're expecting growth to explode next year, so the strategy is to bring on new debt to finance operations. At the same time, your manager is afraid of taking on debt because then it will be harder to pay the bills every month with more liabilities going out the door. Using the information below, run through the hypothetical scenario of taking on debt, and then recommend whether you would or would not take on the debt. (HINT: You are going to be calculating the WACC to show whether your costs of capital will increase or decrease!) If the firm accepts the debt proposal, then the following are the details of the bonds: Number of years: 10 Type: Annual Coupon Rate 6% Current Bond Price 650 Number of bonds issued 800 *Assume Par Value is 1,000 Current Information: Proposed Changes: WACC Before Debt) WE R E WD RD Equity: Equity: Shares 25,000 Shares 25,000 WACC Share Value 120.00 Share Value $ 120.00 Beta 1.35 Beta 1.35 WACC After Debt WEREWDRD WACC Debt: (Annual Bonds) Bonds Outstanding Issuing Price Years to Maturity Coupon Rate Par Value Yield to Maturity Corporate Tax Rate Debt: (Annual Bonds) O Bonds Outstanding 0 Issuing Price 0 Years to Maturity O Coupon PMT O Par Value O Yield to Maturity 40% Corporate Tax Rate 40% Take on Debt? (Yes) (No) Current Market Info: Treasury Bill Yield Expected Market Return Current Market Info: 3.85% Treasury Bill Yield 7.95% Expected Market Return 3.85% Why? 7.95% CAPM CAPM Total Equity Cap Total Debt Cap Total Equity Cap Total Debt Cap