Use the following data for Problems 12-16. The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. The company is a zero-growth company. AJC's current cost of equity is 8.775 percent, and its tax rate is 35 percent. The firm has 12,000 shares of common stock outstanding selling at a price per share of $50.00.

12. What is AJC's current total market value and weighted average cost of capital? Hint: V = market value of debt + market value of equity

13. The firm is considering moving to a capital structure that is comprised of 45 percent debt and 55 percent equity, based on market values. The new funds would be used to replace the old debt and to repurchase stock. It is estimated that the increase in riskiness resulting from the leverage increase would cause the required rate of return on debt to rise to 7 percent, while the required rate of return on equity would increase to 9.7 percent. If this plan were carried out, what would be AJC's new WACC and total value? Hint: Youll need to find the FCF of the firm

14. Now assume that AJC is considering changing from its original capital structure to a new capital structure with 35 percent debt and 65 percent equity. If it makes this change, its resulting total market value would be $820,000. What would be its new stock price per share? Hint: use the lecture slides to do a before/after debt issue comparison to calculate stock price per share; since Vop increases, so must stock price!

15. Now assume that AJC is considering changing from its original capital structure to a new capital structure that results in a stock price of $52.50 per share. The resulting capital structure would have a $503,450 total market value of equity and $326,550 market value of debt. How many shares would AJC repurchase in therecapitalization? Hint: use the lecture slides to do the next step: share price after repurchase.

16. Looking at the results of problems 12-15, what should be the optimal capital structure for this firm?