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I can only find the answer to part 1 in Chegg. Thank you so much for your help! Selected financial information for Union Aerospace Corporation
I can only find the answer to part 1 in Chegg. Thank you so much for your help!
Selected financial information for Union Aerospace Corporation (UAC) is provided in the table. UAC is currently all-equity financed, but it is considering a leveraged capital structure, details of which are presented in the Proposed column. Assume that UAC generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. The company isn't growing so there are no investments in working capital or fixed assets. Assume that taxes are zero and that all of net income is paid out as a dividend. Assume that the debt is perpetual with annual coupons at the rate ko. Flynn Taggart is a shareholder in UAC. He owns 10,000 shares. Answer the questions that follow. Capital Structure Current Proposed EBIT $200,000 $200,000 Debt, D SO $857,100 Cost of Debt, ko N/A 5% Shares Outstanding 100,000 Stock Price $28.57 Part 1 Under the current capital structure, how much does Flynn receive in dividends at the end of each year? O $30,000 $20,000 O $10,000 O $40,000 Part 2 Under the proposed capital structure, UAC will use all of the new debt to repurchase (and cancel) shares. How many shares will be left outstanding after the repurchase if UAC buys shares for $28.571 per share? O 90,000 70,000 O 60,000 O 80,000 Part 3 Assume that Flynn doesn't sell any shares during the repurchase. Under the leveraged capital structure, how much does Flynn receive in dividends at the end of each year? O $21,449 O $20,000 $22,449 O $20,449 Part 4 Assume that UAC implements the new (leveraged) capital structure and that Flynn doesn't sell any shares during the repurchase. After the repurchase, Flynn is unhappy with his dividends. How many shares does Flynn have to sell in order to return his annual cash flows to their all-equity level? (Assume that the stock price doesn't change and that Flynn can lend at the same rate as UAC borrows, ko) 0 2,000 O 3,000 O 4,000 O 1,000Step by Step Solution
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