Problem 6-7 As the chief financial officer of Adirondack Designs, you have the following information: Next year's expected net income after tax but before net.I 'Financing $ 43 million Sinking-fund payments due next year on the existing debt $ 18 million Interest due next year on the existing debt $ 13 million Common stock price, per share $ 29.5 Common shares outstanding 23 million Company tax rate 3596 a. Calculate Adirondack's timesinterestearned ratio for next year assuming the firm raises $53 million of new debt at an interest rate of2 percent. b. Calculate Adirondack's timesburdencovered ratio for next year assuming annual sinkingfund payments on the new debt will equal $6.0 million. c. Calculate next year's earnings per share assuming Adirondack raises the $53 million of new debt. . Calculate next year's timesinterestearned ratio, timesburdencovered ratio, and earnings per share if Adirondack sells 1.8 million new shares at $28 a share instead of raising new debt. D. Note: Do not round intermediate calculations. Round \"Earnings per share" answers to 2 decimal places and other answers to1 decimal place. Times interest earned Times burden covered Earnings per share Times interest earned Times burden covered Earnings per share Problem 6-8 A broker wants to sell a customer an investment costing $100 with an expected payoff in one year of $107.8. The customer indicates that a 7.8 percent return is not very attractive. The broker responds by suggesting the customer borrow $80 for one year at 5.8 percent interest to help pay for the investment. a. What is the customer's expected return if she borrows the money? Note: Round your answer to 1 decimal place. Customer's expected return %Problem 6-10 FARO Technologies, whose products include portable 3D measurement equipment, recently had 23 million shares outstanding trading at $20 a share. Suppose the company announces its intention to raise $260 million by selling new shares. a. How large a loss in dollar terms will existing FARO shareholders experience on the announcement date, based on studies that show losses are 30% of the size of the new issue? Note: Enter your answer in millions without a sign. Expected loss million b. What percentage of the value of FARO's existing equity prior to the announcement is this expected loss? Note: Round your answer to 1 decimal place. Percentage of the value c. At what price should FARO expect its existing shares to sell immediately after the announcement? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Expected priceProblem 6-11 This is a more difcult but informative problem. James Brodrick 8: Sons, Incorporated, is growing rapidly and, if at all possible, would like to nance its growth without selling new equity. Selected information from the company's five-year financial forecast follows. Year 1 2 3 4 5 Earnings after tax ($ millions) 169 125 166 224 399 Capital investment ($ millions) 1?5 366 388 368 539 Target book value debtto-equity ratio (X) 139 136 139 136 139 Dividend payout ratio {%) ? ? ? P ? Marketable securities {$ millions) 259 256 259 256 256 (Year 8 marketable securities = $259 million) a. According to this forecast, what dividends will the company be able to distribute annually without raising new equity and while maintaining a balance of$250 million in marketable securities? What will the annual dividend payout ratio be? (Hint: Remember sources of cash must equal uses at all times.) Note: Round dividends to the nearest million dollars and the payout ratio '36 to the nearest ones place. [S millions] Dividends (millions) Divident Payout ratio {'26) Problem 6-12 An all-equity business has 180 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm billion Market value of equity billion b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm billion Market value of equity billion d. Assume now that the recap increases total firm cash flows, which adds $260 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm billion Market value of equity billionProblem 6-13 In recent years, Haverhill Corporation has averaged net income of $10 million per year on net sales of $100 million per year. It currently has no longterm debt. but is considering a debt issue of $3.5 million. The interest rate on the debt would be 5 percent. Haverhill currently faces an effective tax rate of45 percent. What would be Haverhill's annual interest tax shield if it goes through with the debt issuance? Annual interest tax _