Please see attached files and answer associated questions.
The following scenario contains all the information you need to answer the questions use what's here, do not include additional analysis from the case or elsewhere to complete your answers. Your company has $10,000,000 in "excess cash" more than you need to provide a cushion on your balance sheet to protect against risk. Jane, your crack financial analyst, has prepared a set of options for you to consider. They are: A) Keep the $10,000,000 on the balance sheet and earn a 3.0% aftertax return from the bank for the next 15 years. B) One of your bondholders has offered to sell you back $10,000,000 of your outstanding 12% notes, which would enable you to forego this year's interest payments plus the next 15 years, at which point the bond will mature. Assume a tax rate of 35%. 0) Expand your plant by 165,000 units per shift; Jane says that you can expect an $11 aftertax contribution margin per unit and that you can run this new portion of the plant for 2 shifts for the next 15 years, at which point the equipment will need to be scrapped. D) Spend the $10,000,000 this year and another $10,000,000 next year on inventing the CPRA product. Jane says you will yield zero incremental after-tax contribution margin the following year, but $2.5m the year after that, $5m the year after that, and $10m per year thereafter until year 15, at which point Jane says it's reasonable to assume that the CPRA product will have been supplanted by other technologies. Jane has prepared a worksheet where she has laid out for you the cash flows associated with these decisions from the shareholders' oersoeofive. A. Save it B. Buy back C. Capacity D. CPRA debt increase Year 1 300,000 780,000 3,630,000 40,000,000 Year 3 300,000 780,000 3,630,0(1) 2,500,000 Year 5 300,000 780,000 3,630,000 10,000,000 Year 7 300,000 780,000 3,630,000 10,000,000 Year 9 300,000 780,000 3,630,000 10,000,000 Year 11 300,000 780,000 3,630,000 10,000,000 Year 13 300,000 780,000 3,630,000 10,000,(D0 Year 15 10,300,000 10,780,000 3,630,000 10, 000,000 12. Jane tells you that your taxeffected cost of capital (the appropriate discount rate to use) is 20%. What Is the value of option A to current shareholders? 13. At the same cost of capital of 20%, what is the value of option B to current shareholders? 14. Continue to assume that the cost of capital is 20%, what is the value of option 0 to current shareholders? 15. At a discount rate of 20%, what is the value of option D to current shareholders? 16. What if your cost of capital was 12% instead of 20%? Which option (A, B, C, or D) creates the most value to current shareholders? 17. What is the value of that option to shareholders? 18. Continue to assume that your cost of capital is 12%. Jane now says that an alternative is to issue the $1 Om to shareholders in the form of an immediate dividend. Which of the options will create more value for current shareholders than issuing a dividend? O Noneofthem 0 All of them 0 B,C,andD O CandD O JustC O JustD
