This question is from the Financial Management exam. Please do it asap.

Q2: Short Form Case Study - Xerox Inc. Consider that Xerox Inc., has bonds of USD 1 million outstanding on its balance sheet which pay a coupon rate of 8% per annum and par value of USD 1,000. These bonds were issued on February 5, 2018 for 5-years with fixed coupon rate. Issued and outstanding common stocks are 262,857 shares with par value of USD 1/share. Current market price of stocks is USD 20/share. Company's net income for CY2019 was USD 552,000 compared to USD 550,000 in CY2018. Corporate tax rate of Xerox is 40%. At the current level of debt, cost of equity, K. = 10.5% and will remain unchanged unless debt is increased. With company continuing to maintain a strategy of pursuing no new projects over the next 2-3 years, zero growth-mode is maintained in CY2020 and that all earnings are paid out in dividends. Towards the start of CY2020, management has been examining its capital structure i.e., the mix of equity and debt capital to assess and reassess its financial strategy. There is possibility that company can raise USD 1 million of additional debt and this cash flow can be used buy back some of its outstanding common stocks. Should the company pursue issuing new bonds, coupon rate on the new bonds will be 9%, whereas cost of equity will increase to k = 11.5%. The old bonds that paid semi-annual coupon rate of 8% are senior to the new bonds and would remain outstanding and continue to yield the same coupon rate with market value of USD 1 million. Required: a) Calculate earnings per share (EPS) for CY2019 and CY2018. b) Calculate dividend per share for CY2019 and CY2018. c) Calculate the number of bonds that are issued and outstanding at the year-end of CY2019? d) If the market value of 8% coupon bonds is USD 1.00 million, what is the market price of such bonds? Page 2 e) Calculate market value of the company's equity. f) should the firm increase its debt to USD 2 million? g) If the firm decided to increase its debt level to USD 3 million, additional USD 2 million debt would be raised @ 12% and that cost of equity will increase to K = 15%. Should the firm to increase its debt to USD 3 million? h) Based on your calculations above, what level of debt would you recommend? i) Can the company continue to maintain a zero-growth strategy for long? Why or why not? Substantiate your view point with cogent reasons