Please provide solution in excel showing all the formulas.

1)

Consider a firm with EBIT of $125,000, debt of $500,000. If the rd is 12%, the rsU= 16% and the corporate tax rate is 40%, then what is the value of the firm (VL) according to MM with corporate taxes?

2)

The market value of Firm L's debt is $200,000 and its yield is 10%. The firm's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 14%. Under the MM extension with growth, what would Firm L's total value be if it had no debt?

3)

The common stock of Southern Airlines currently sells for $33, and its 8% convertible debentures (issued at par, or $1,000) sell for $850. Each debenture can be converted into 27 shares of common stock at any time before 2025. What is the conversion value of the bond?

4)

McGovern Enterprises is interested in issuing bonds with warrants attached. The bonds will have a 30-year maturity and annual interest payments. Each bond will come with 20 warrants that give the holder the right to purchase one share of stock per warrant. The investment bankers estimate that each warrant will have a value of $10.00. A similar straight-debt issue would require a 8.5% coupon. What coupon rate should be set on the bonds-with-warrants so that the package would sell for $1,000?

5)

Mariano Manufacturing can issue a 25-year, 7.85% annual payment bond at par. Its investment bankers also stated that the company can sell an issue of annual payment preferred stock to corporate investors who are in the 40% tax bracket. The corporate investors require an after-tax return on the preferred that exceeds their after-tax return on the bonds by 1.0%, which would represent an after-tax risk premium. What coupon rate must be set on the preferred in order to issue it at par?

6)

Volunteer Fabricators, Inc. (VF) currently has zero debt. It is a zero growth company, and it has the data shown below. Now the company is considering using some debt, moving to the market value capital structure indicated below. The money raised would be used to repurchase stock. It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below.

EBIT = $80,000 New Debt/Value = 20%

Growth = 0% New Equity/Value = 80%

Orig cost of equity, rs = 10.0% No. of shares = 10,000

New cost of equity = rs .0% Price per share = $48.00

Tax rate = 40% Interest rate = rd = 7.0%

Based on the data in the previous two problems, what would the stock price be if VF issued the new debt and immediately used the proceeds to repurchase stock?

7)

Simon Software Co. is trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 30% debt and 70% equity, based on market values. (Its D/S ratio is 0.4286.) The risk-free rate is 6% and the market risk premium, rM rRF, is 5%. Currently the companys cost of equity, which is based on the CAPM, is 12% and its tax rate is 40%. What would be Simons estimated cost of equity if it were to change its capital structure to 50% debt and 50% equity?

8) Dabney Electronics currently has no debt. Its operating income is $25 million and its tax rate is 40%. It pays out all of its net income as dividends and has a zero growth rate. The current stock price is $40 per share, and it has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40% debt and 60% equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10%. What would its stock price be if it changes to the new capital structure?