What is going on at M&M Pizza? How do the financial statements for M&M Pizza vary with the proposed repurchase plan? Do the alternative policies improve the expected dividends per share? What impact does the repurchase plan have on M&Ms weighted-average cost of capital? Complete the table below and explain your results. Income Statement Debt = 0 Debt = 500 Revenue 1500 1500 Operating expenses 1375 1375 Operating profit 125 125 Interest payments 0 Taxes 0 0 Net profit 125 Dividends 125 Shares outstanding 62.5 Dividends per share 2 Cost of Capital Cost of debt 4.00% 4.00% Beta 0.8 Levered Beta Cost of equity CAPM WACC = D /V* Kd (1 - t) + (1 - D/V) * Ke

What are the debt and equity claims worth under the alternative scenarios, complete the table below and explain your results? You may note that the present value of a perpetual cash flow stream is equal to the expected payment divided by the associated required return. Which proposal is best for investors? What do you recommend that Miller do? Cash flows Debt = 0 Debt = 500 Debt holders = Interest payments Equity holders = Dividend payments Free cash flow = Op profit Value Debt = Int payments / Kd Equity = Div payments / Ke Total = Sum or FCF / WACC Share price 1 = Equity / Shares outstanding Share price 2 = DPS / Ke Value of Firm = Value of unlevered + Tax shield D/E = D / (V - D) D/V = D / V

How would your analysis in questions 2 and 3 and recommendation in question 4 change if the new tax law is implemented? Please note that, with corporate taxes, the expected debt-to-equity ratio under the share repurchase plan is 0.588, and the number of remaining shares outstanding is 39.4 million. Complete the same table as in question 2 and 3 with a tax rate of 20%.