disadvantages involved here. 48 nt plan. Will it increase shareholder wealth? Disc 2. STEPHENSON REAL ESTATE RECAPITALIZA Robert Stephenson founded Stephenson Real Es current CEO. The company purchases ree rents the property to tenants. The company past 18 years, and the shareholders are satisfied Prior to founding Stephenson Real Estate, Robert failed alpaca farming operation. The resulting ba averse to debt financing. As a result, the company is million shares of common stock outstanding. The sto per share. Stephenson is evaluating a plan to purchase a southeastern United States for $50 million. The land w tenant farmers. This purchase is expected to increase earnings by $12 million in perpetuity. Kim Weyand, the company ATE RECAPITALIZATION Son Real Estate Company years ago and is its urchases real estate, including land and buildings, and ne company has shown a profit every year for the are satisfied with the company's management. estate, Robert was the founder and CEO of a he resulting bankruptcy made him extremely the company is entirely equity financed, with 9 standing. The stock currently trades at $42.50 9 a plan to purchase a huge tract of land in the million. The land will subsequently be leased xpected to increase Stephenson's annual pre n in perpetuity. Kim Wevand, the company's new CFO, h Jer 2008. The out complications arose complexity of many of Lehman's - and time-consuming. Eventually, Lehman half years later in March 2012. Some of the firms T.COM ssroom.aspen.edu/ d e/content/47072/viewContent2450635/View on. Four days later, VOSSO. Credit Suisse on put in charge the ima dotermined that the more yo whether the con of capital is 12.5 percent. She feels that the company fit included debt in its capital structure, so she is evad on some value w should issue debt to entirely finance investment banks. she thinks that the company can an 8 percent coupon rate. Fro structure in the range of 70 percent company goes beyond much higher coupon be costs would rise sharp federal). ermined that the company's current is that the company would be more valuable rely finance the project Based on some conversations with ure, so she is evaluating whether the company "ad. From her anable he also believes that a copila company can issue bonds at par value with Vods beyond 3 varcent equity/30 percent debt would be optimal. If the "pon because the possibility of financial distress and the associated Porcent debt, its bonds would carry a lower rating and a y. Stephenson has a 40 percent corporate tax rate (state and recommend that it issue debt or equity tephenson wishes to mavimize its total market value, would you o that it issue debt or equity to finance the land purchase? Explain. onstruct Stephenson's market value balance sheet before it announces the purchase. c. Suppose Steph suppose Stephenson decides to issue equity to finance the purchase. 1. What is the net present value of the project? II. Construct Stephenson's market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firm's stock? How many shares will Stephenson need to issue to finance the purchase? ili. Construct Stephenson's market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm's stock? d. Construct Stephenson's market value balance sheet after the purchase has been made. e. Suppose Stephenson decides to issue debt to finance the purchase. i. What will the market value of the Stephenson Company be if the purchase is financed with debt? ii. Construct Stephenson's market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm's stock? f. Which method of financing maximizes the per-share stock price of Stephenson's equity? TOP AADITAALID ADDONDUITE disadvantages involved here. 48 nt plan. Will it increase shareholder wealth? Disc 2. STEPHENSON REAL ESTATE RECAPITALIZA Robert Stephenson founded Stephenson Real Es current CEO. The company purchases ree rents the property to tenants. The company past 18 years, and the shareholders are satisfied Prior to founding Stephenson Real Estate, Robert failed alpaca farming operation. The resulting ba averse to debt financing. As a result, the company is million shares of common stock outstanding. The sto per share. Stephenson is evaluating a plan to purchase a southeastern United States for $50 million. The land w tenant farmers. This purchase is expected to increase earnings by $12 million in perpetuity. Kim Weyand, the company ATE RECAPITALIZATION Son Real Estate Company years ago and is its urchases real estate, including land and buildings, and ne company has shown a profit every year for the are satisfied with the company's management. estate, Robert was the founder and CEO of a he resulting bankruptcy made him extremely the company is entirely equity financed, with 9 standing. The stock currently trades at $42.50 9 a plan to purchase a huge tract of land in the million. The land will subsequently be leased xpected to increase Stephenson's annual pre n in perpetuity. Kim Wevand, the company's new CFO, h Jer 2008. The out complications arose complexity of many of Lehman's - and time-consuming. Eventually, Lehman half years later in March 2012. Some of the firms T.COM ssroom.aspen.edu/ d e/content/47072/viewContent2450635/View on. Four days later, VOSSO. Credit Suisse on put in charge the ima dotermined that the more yo whether the con of capital is 12.5 percent. She feels that the company fit included debt in its capital structure, so she is evad on some value w should issue debt to entirely finance investment banks. she thinks that the company can an 8 percent coupon rate. Fro structure in the range of 70 percent company goes beyond much higher coupon be costs would rise sharp federal). ermined that the company's current is that the company would be more valuable rely finance the project Based on some conversations with ure, so she is evaluating whether the company "ad. From her anable he also believes that a copila company can issue bonds at par value with Vods beyond 3 varcent equity/30 percent debt would be optimal. If the "pon because the possibility of financial distress and the associated Porcent debt, its bonds would carry a lower rating and a y. Stephenson has a 40 percent corporate tax rate (state and recommend that it issue debt or equity tephenson wishes to mavimize its total market value, would you o that it issue debt or equity to finance the land purchase? Explain. onstruct Stephenson's market value balance sheet before it announces the purchase. c. Suppose Steph suppose Stephenson decides to issue equity to finance the purchase. 1. What is the net present value of the project? II. Construct Stephenson's market value balance sheet after it announces that the firm will finance the purchase using equity. What would be the new price per share of the firm's stock? How many shares will Stephenson need to issue to finance the purchase? ili. Construct Stephenson's market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm's stock? d. Construct Stephenson's market value balance sheet after the purchase has been made. e. Suppose Stephenson decides to issue debt to finance the purchase. i. What will the market value of the Stephenson Company be if the purchase is financed with debt? ii. Construct Stephenson's market value balance sheet after both the debt issue and the land purchase. What is the price per share of the firm's stock? f. Which method of financing maximizes the per-share stock price of Stephenson's equity? TOP AADITAALID ADDONDUITE