financial management

Ma Homework: Chapter 12 Case Study Question 1, Chapter 12 Case (static) Part 1 of 16 HW Score: 0% O Points: 0 c Evaluating Tampa Manufacturing's Capital Structure Tampa Manufacturing, an established producer of printing equipment, the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology developmen this scenario, the firm's board has instructed its management to institute programs that will allow it to operate more efficiently, ea important, maximize share value. In this regard, the firm's chief financial officer (CFO), Jon Lawson, has been charged with eva Lawson believes that the current capital structure, which contains 10% debt and 90% equity, may lack adequate financial levera structure, Lawson has gathered the data summarized in the following table on the current capital structure (10% debt ratio) and structures-A (30% debt ratio) and B (50% debt ratio)-that he would like to consider. Capital Structure Financial Ma ework Chapte re: 0% (0 p Unlimit Questions 1 (0/1) FN331 - Financial Management = Homework: Chapter 12 Case Study Question 1, Chapter 12 Case (static) Part 1 of 16 Current (10% debt) $1,000,000 9.0% 100,000 shares Capital Structure A (30% debt) $3,000,000 10.0% B Source of capital (50% debt) Long-term debt $5,000,000 Coupon interest rate 12.0% Common stock 40,000 shares Required return on equity, r 12.0% 13.0% 18.0% "These structures are based on maintaining the firm's current level of $10,000,000 of total financing. Pinterest rate applicable to all debt. Market-based return for the given level of risk. 70,000 shares GIOCCH est HW OI Unlimit Questions on 1 (0/1) Lawson expects the firm's earnings before interest and taxes (EBIT) to remain at its current level of $1,200,000. The firm has a 40% tax rate. To Do a. Use the current level of EBIT to calculate the times interest earned ratio for each capital structuce. Evaluate the current and two alternative capital structures using the times interest earned and debt ratios. b. Prepare a single EBIT-EPS graph showing the current and two alternative capital structures. c. On the basis of the graph in part (b), which capital structure will maximize Tampa's earnings per share (EPS) at its expected level of EBIT of $1,200,000? Why might this not be the best capital structure? d. Using the zero-growth valuation model, find the market value of Tampa's equity under each of the three capital structures at the $1,200,000 level of expected EBIT e. On the basis of your findings in parts (c) and (d), which capital structure would you recommend? Why? EXTE a. Use the current level of EBIT to calculate the times interest earned ratio for each capital structure. (Round to two decimal places.) 1331-Financial The times interest earned ratio for the 10% debt ratio will be Privacy Policy | Ce