The following builds on the material that applied to the previous questions 5 to 7 . The President \& CEO of Kanata-Orleans Railway Limited (KORL) recently picked up a copy of the Ross finance textbook, and she decided to read some of its chapters during her Caribbean cruise vacation. She was very interested in the chapter dealing with leverage, and asked her CFO about what would be the impact of issuing $3.4 million of bonds paying 4.5% annual coupons to buy back a proportion of KORL's current shares. Remember KORL is originally an all equity financed firm. Question 8 (2 points) Saved Assuming the value of KORL's unlevered equity with taxes is $10.75 million, (Note: not necessarily the answer to any of the above questions) what are the answers to the following questions: (i) what would be the value of KORL with the new capital structure (i.e. with the new bond funding)? (ii) what would be the value of its equity? (iii) what would be its new Debt/Equity ratio? (i) \$12.65 million; (ii) \$9.75 million; (iii) 0.213 (i) \$13.75 million; (ii) \$10.25 million; (iii) 0.213 (i) \$11.94 million; (ii) \$8.54 million; (iii) 0.398 (i) \$14.75 million; (ii) \$9.75 million; (iii) 0.513 (i) \$12.75 million; (ii) \$7.75 million; (iii) 0.513 Question 9 (2 points) What would be the new rate of return for equity under the new capital structure? Assume that there are corporate taxes and assume that the debt to equity ratio is 0.5 (Note: this assumption is not necessarily the answer any of the questions above). Remember to also consider the material that applied to the previous questions 10.48% 12.40% 11.125% 14.10% 13.84% Question 10 (2 points) Saved Under the new KOREL capital structure what would be : (i) the equity and debt weights used to calculate WACC and (ii) what would be the WACC? Assume the debt to equity ratio is 0.5 and if the levered rate of return for equity is 13.5% and cost of debt is 5.5% (Note: these assumptions are not necessarily the answers to any of the above questions). (i) We=50%&Wd=50%; (ii) WACC=8.21% (i) We=62.5%&Wd=37.5%; (ii) WACC=10.72% (i) We=62.5%&Wd=37.5%; (ii) WACC=11.44% (i) We=66.7%&Wd=33.3%; (ii) WACC=10.95% (i) We=60% \& Wd=40%; (ii) WACC=11.20% The following builds on the material that applied to the previous questions 5 to 7 . The President \& CEO of Kanata-Orleans Railway Limited (KORL) recently picked up a copy of the Ross finance textbook, and she decided to read some of its chapters during her Caribbean cruise vacation. She was very interested in the chapter dealing with leverage, and asked her CFO about what would be the impact of issuing $3.4 million of bonds paying 4.5% annual coupons to buy back a proportion of KORL's current shares. Remember KORL is originally an all equity financed firm. Question 8 (2 points) Saved Assuming the value of KORL's unlevered equity with taxes is $10.75 million, (Note: not necessarily the answer to any of the above questions) what are the answers to the following questions: (i) what would be the value of KORL with the new capital structure (i.e. with the new bond funding)? (ii) what would be the value of its equity? (iii) what would be its new Debt/Equity ratio? (i) \$12.65 million; (ii) \$9.75 million; (iii) 0.213 (i) \$13.75 million; (ii) \$10.25 million; (iii) 0.213 (i) \$11.94 million; (ii) \$8.54 million; (iii) 0.398 (i) \$14.75 million; (ii) \$9.75 million; (iii) 0.513 (i) \$12.75 million; (ii) \$7.75 million; (iii) 0.513 Question 9 (2 points) What would be the new rate of return for equity under the new capital structure? Assume that there are corporate taxes and assume that the debt to equity ratio is 0.5 (Note: this assumption is not necessarily the answer any of the questions above). Remember to also consider the material that applied to the previous questions 10.48% 12.40% 11.125% 14.10% 13.84% Question 10 (2 points) Saved Under the new KOREL capital structure what would be : (i) the equity and debt weights used to calculate WACC and (ii) what would be the WACC? Assume the debt to equity ratio is 0.5 and if the levered rate of return for equity is 13.5% and cost of debt is 5.5% (Note: these assumptions are not necessarily the answers to any of the above questions). (i) We=50%&Wd=50%; (ii) WACC=8.21% (i) We=62.5%&Wd=37.5%; (ii) WACC=10.72% (i) We=62.5%&Wd=37.5%; (ii) WACC=11.44% (i) We=66.7%&Wd=33.3%; (ii) WACC=10.95% (i) We=60% \& Wd=40%; (ii) WACC=11.20%