1. 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?
2. What impact does the repurchase plan have on M&Ms weighted-average cost of capital? Complete the table below (No Corporate Taxes)

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	2.00
Cost of Capital
	Cost of debt	4.00%	4.00%
	Beta	0.800	Levered Beta
	Cost of equity	CAPM
	WACC	= D / V * Kd (1 - t) + (1 - D/V) * Ke

Cash flows:

Debt holders: 0.0 20 = interest payments

Equity holders: 125 105 = Dividend payments

Free cash flow: 125 125 = Op profits

Value

Debt : 0.0 500 = int payment/ kd

Equity 1562.5 1062.5 = div payment / ke

Total 1562.5 1562.5 = sum or FCF / WACC

Share price 1: 25.0 25.0 = Equity / shares outstanding

Share price 2: 25.0 25.0 = DPS / ke

Value of firm 1562.5 1562.5 = Value of unlevered + Tax shield

D/E 0.0 0.471 = D / (V-D)

D/V 0.0 0.320 =D/V

1. What are the debt and equity claims worth under the alternative scenarios? 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?
2. 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 with a tax rate of 20%.