Percentages need to be entered in decimal format, for instance 3 would be entered as 03 Ezzell Enterprises has the following capital structure, which it considers to be optimal under present and forecasted conditions Debt (long term only) ratio 45 Common equity 55 Total liabilities and equity 100 For the coming year, management expects after tax earning of $2 5 million Ezzell's past dividend policy of paying out 60 of earnings will continue Present commitments from its bankers will allow Ezzell to borrow according to the following schedule Loan Amount Interest Rate $1 to $500,000 9 on this increment of debt $500,001 to $900,000 11 on this increment of debt $900,001 and above 13 on this increment of debt The company's marginal tax rate is 40 , the current market price of its stock is $22 per share, its last dividend was $2 20 per share, and the expected growth rate is 5 External equity (new common) can be sold at a flotation cost of 10 Project Cost Annual cash flows Project life Expected return 1 $675,000 $155,401 8 years 16 2 $900,000 $268,484 5 years 15 3 $375,000 $161,524 3 years 14 4 $562,500 $185,194 4 years 12 5 $750,000 $127,351 10 years 11 Management asks you to help determine which projects (if any) should be undertaken You proceed with this analysis by answering the following questions (or performing the tasks) as posed (This information is shown on the spreadsheet provided ) How many breaks are there in the MCC schedule At what dollar amounts do the breaks occur, and what causes them debt or retained earnings (Refer to Rows 44 48 on the worksheet ) What is the weighted average cost of capital (WACC) in each of the intervals between the breaks (Refer to the Key Output area in Columns D F at the top of the worksheet ) Which projects should Ezzell's management accept (Refer to the Optimal Capital Budget beginning on Row 93 to see which projects are listed, meaning they should be accepted ) The problem stated that Ezzell pays out 60 of its earnings as dividends Which project(s) should management accept if the dividend payout ratio were changed to 0 Which project(s) should management accept if the dividend payout ratio were changed to 100 (Refer again to the Optimal Capital Budget beginning on row 93 ) Now assume the dividend payout ration is back to 60 , but the debt ratio has increased to 65 This caused all interest rates r d (Column C, Rows 29 31) to rise by one percentage point to 10 , 12 , and 14 respectively, and the growth rate to increase from 5 to 6 Examine what happens to the MCC schedule and identify which project(s) management should accept (Refer again to the Optimal Capital Budget section ) Assume the same figures as in Question 4, but suppose Ezzell's marginal tax rate (Column C, Row 20) falls to 20 Examine what happens to the MCC schedule and identify which project(s) management should accept Suppose the marginal tax rate falls to 0 , examine what happens to the MCC schedule and identify which project(s) management should accept (Refer again to the Optimal Capital Budget section ) 3 The model that d Nowance is made for stations where the CC share on the los In her words, the projects were 4 When you go on to work other parts of the problem, the way to proceed in to make the required change in the rection the charge of verage costs of capital, record the change, and answer the in as required INPUT DATA 1,111,1 Lamine Did you Current Last dividend pad Equilty Botion cost KEY OUTPUT 45 00 Rat canings break $2 500 000 000 2 $22 00 WACC before $220 VICC SO WICC before 90 00 ACC arbres Accepted 115 Bering cos 10 7 000 Project RR 2 375 000 12 500 15 00 14 00 11 00 WOOL GENERATED DATA Breaks in the MCC hele 1 111 111 2 000 000 Use of Cost offering below to break Component Com 2704 WACCI Cost of financing benen Brand seconds Compres 8 57 WACO 2 Cost of financing between second and third breaks Component WACC) Cost of financing towe mind brak Component Wed WACCA Cat Com Range of franang 1124 11 99 1111 112 2,000 00 2 000 001 5 000 000 12 15 13 24 13 2 Pro 1 Cool 675 000 375 000 155 0 0 150 000 3 The model that d Nowance is made for stations where the CC share on the los In her words, the projects were 4 When you go on to work other parts of the problem, the way to proceed in to make the required change in the rection the charge of verage costs of capital, record the change, and answer the in as required INPUT DATA 1,111,1 Lamine Did you Current Last dividend pad Equilty Botion cost KEY OUTPUT 45 00 Rat canings break $2 500 000 000 2 $22 00 WACC before $220 VICC SO WICC before 90 00 ACC arbres Accepted 115 Bering cos 10 7 000 Project RR 2 375 000 12 500 15 00 14 00 11 00 WOOL GENERATED DATA Breaks in the MCC hele 1 111 111 2 000 000 Use of Cost offering below to break Component Com 2704 WACCI Cost of financing benen Brand seconds Compres 8 57 WACO 2 Cost of financing between second and third breaks Component WACC) Cost of financing towe mind brak Component Wed WACCA Cat Com Range of franang 1124 11 99 1111 112 2,000 00 2 000 001 5 000 000 12 15 13 24 13 2 Pro 1 Cool 675 000 375 000 155 0 0 150 000

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Percentages need to be entered in decimal format, for instance 3% would be entered as .03. Ezzell Enterprises has the following capital structure, which it

Percentages need to be entered in decimal format, for instance 3% would be entered as .03.

Ezzell Enterprises has the following capital structure, which it considers to be optimal under present and forecasted conditions:

Debt (long-term only) ratio - 45%
Common equity - 55%
Total liabilities and equity - 100%

For the coming year, management expects after-tax earning of $2.5 million. Ezzell's past dividend policy of paying out 60% of earnings will continue. Present commitments from its bankers will allow Ezzell to borrow according to the following schedule:

Loan Amount	Interest Rate
$1 to $500,000	9% on this increment of debt
$500,001 to $900,000	11% on this increment of debt
$900,001 and above	13% on this increment of debt

The company's marginal tax rate is 40%, the current market price of its stock is $22 per share, its last dividend was $2.20 per share, and the expected growth rate is 5%. External equity (new common) can be sold at a flotation cost of 10%.

Project	Cost	Annual cash flows	Project life	Expected return
1	$675,000	$155,401	8 years	16%
2	$900,000	$268,484	5 years	15%
3	$375,000	$161,524	3 years	14%
4	$562,500	$185,194	4 years	12%
5	$750,000	$127,351	10 years	11%

Management asks you to help determine which projects (if any) should be undertaken. You proceed with this analysis by answering the following questions (or performing the tasks) as posed. (This information is shown on the spreadsheet provided.)

How many breaks are there in the MCC schedule? At what dollar amounts do the breaks occur, and what causes them - debt or retained earnings? (Refer to Rows 44 -48 on the worksheet.) What is the weighted average cost of capital (WACC) in each of the intervals between the breaks? (Refer to the Key Output area in Columns D-F at the top of the worksheet.)
Which projects should Ezzell's management accept? (Refer to the Optimal Capital Budget beginning on Row 93 to see which projects are listed, meaning they should be accepted.)
The problem stated that Ezzell pays out 60% of its earnings as dividends. Which project(s) should management accept if the dividend payout ratio were changed to 0%? Which project(s) should management accept if the dividend payout ratio were changed to 100%? (Refer again to the Optimal Capital Budget beginning on row 93.)
Now assume the dividend payout ration is back to 60%, but the debt ratio has increased to 65%. This caused all interest rates r_d (Column C, Rows 29-31) to rise by one percentage point to 10%, 12%, and 14% respectively, and the growth rate to increase from 5% to 6%. Examine what happens to the MCC schedule and identify which project(s) management should accept. (Refer again to the Optimal Capital Budget section.)
Assume the same figures as in Question 4, but suppose Ezzell's marginal tax rate (Column C, Row 20) falls to 20%. Examine what happens to the MCC schedule and identify which project(s) management should accept. Suppose the marginal tax rate falls to 0%, examine what happens to the MCC schedule and identify which project(s) management should accept. (Refer again to the Optimal Capital Budget section.)

3. The model that d. Nowance is made for stations where the CC share on the los In her words, the projects were 4. When you go on to work other parts of the problem, the way to proceed in to make the required change in the rection the charge of verage costs of capital, record the change, and answer the in as required INPUT DATA 1,111,1 Lamine: Did you Current Last dividend pad Equilty Botion cost KEY OUTPUT 45.00% Rat canings break $2.500.000 000 2 $22.00 WACC before $220 VICC SO WICC before 90.00% ACC arbres Accepted 115 Bering cos 10% 7.000 Project RR 2 375.000 12.500 15.00 14.00 11.00 WOOL-GENERATED DATA Breaks in the MCC hele 1.111.111 2.000.000 Use of Cost offering below to break Component Com 2704 WACCI Cost of financing benen Brand seconds Compres 8.57 WACO 2 Cost of financing between second and third breaks Component WACC) Cost of financing towe mind brak Component Wed WACCA Cat Com Range of franang 1124 . 11.99 1111.112 2,000.00 2.000.001 5.000.000 12.15 13:24 13.2% Pro 1 Cool 675.000 375.000 155 0 0 150.000 3. The model that d. Nowance is made for stations where the CC share on the los In her words, the projects were 4. When you go on to work other parts of the problem, the way to proceed in to make the required change in the rection the charge of verage costs of capital, record the change, and answer the in as required INPUT DATA 1,111,1 Lamine: Did you Current Last dividend pad Equilty Botion cost KEY OUTPUT 45.00% Rat canings break $2.500.000 000 2 $22.00 WACC before $220 VICC SO WICC before 90.00% ACC arbres Accepted 115 Bering cos 10% 7.000 Project RR 2 375.000 12.500 15.00 14.00 11.00 WOOL-GENERATED DATA Breaks in the MCC hele 1.111.111 2.000.000 Use of Cost offering below to break Component Com 2704 WACCI Cost of financing benen Brand seconds Compres 8.57 WACO 2 Cost of financing between second and third breaks Component WACC) Cost of financing towe mind brak Component Wed WACCA Cat Com Range of franang 1124 . 11.99 1111.112 2,000.00 2.000.001 5.000.000 12.15 13:24 13.2% Pro 1 Cool 675.000 375.000 155 0 0 150.000