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Suppose an unleveraged company in a world without taxes has $ 2 4 5 million in assets. a . With 3 , 5 0 0

Suppose an unleveraged company in a world without taxes has $245 million in assets.
a. With 3,500,000 outstanding shares of stock, what is the price of each share?
b. Suppose the expected EBIT for this company is $28,000,000 per year. Calculate each of the following:
ROA
ROE
EPS
Cost of Equity (Rs)
WACC
c. Now, suppose you wish to shift the capital structure of this company, issuing $140 million in perpetual bonds and using the proceeds to buy up shares of stock. How many shares will be outstanding after this shift? (show)
d. If the interest rate on your debt is 8.1%, what is your expected EBT? (show)
e. Calculate each of the following for the newly leveraged firm:
ROA
ROE
EPS
Cost of Equity (Rs)
WACC
f. Using Rs&Rb and the relevant annual CF to equity and debt, calculate the value of the firm (V).
g. Using WACC and the relevant annual CF to the firm, calculate the value of the firm (V).
Now, take the same firm, but put it in an environment where there is a 28% tax rate.
h. What is the value of the unleveraged firm in the world with taxes and what will be the price of each equity share?
i. Calculate each of the following for the unleveraged firm:
ROA
ROE
EPS
Cost of Equity (Rs)
WACC
Now add the $140 million in perpetual debt.
j. What is the value of the leveraged firm in the world with taxes and what will be the price of each equity share?
k. How many shares will be left outstanding after the change in capital structure this time
Calculate each of the following for the leveraged firm:
ROA
ROE
EPS
Cost of Equity
WACC
m. Using Rs & Rb and the relevant annual CF to equity and debt, calculate the value of the Equity (S), the value of debt (B), and the value of the firm (V).
n. Using WACC and the relevant annual CF to the firm, calculate the value of the firm (V).
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