You just started a new job as a Finance Manager at XYZ Corp. As you are starting to get acquainted with the company, you requested the Balance Sheet for the Current Fiscal Year 2018, the Income Statement and a few other items that you deemed appropriate. You can find all of those in the table below and in the Excel file attached. Income Statement for the Current Fiscal Year Sales $43,000,000 COGS $30,000,000 Other expenses $5,000,000 Depreciation $2,000,000 EBIT $6,000,000 Interest $2,000,000 Taxable income $4,000,000 Taxes (40%) $1,600,000 Net income $2,400,000 Dividends Add to RE $600,000 $1,800,000 Balance Sheet, Current Fiscal Year Assets Current Assets Cash $500,000 Accounts Receivable $1,000,000 Inventory $2,000,000 Total CA $3,500,000 Fixed Assets Net PP&E $25,000,000 Liabilities & Owners' Equity Current Liabilities Accounts Payable $1,000,000 Notes Payable $3,000,000 Total CL $4,000,000 Long Term Debt $10,000,000 Owners' Equity Common Stock $6,500,000 Retained Earnings $8,000,000 Total Equity $14,500,000 Total L & OE $28,500,000 Total Assets $28,500,000 Additional information Taxes Shares Outstanding Dividend growth in the last 7 years 40% 1,000,000 8.00% Market-to-Book Ratio 1.25 Depreciation of New Assets 25.00% Question 4. The firm just restructured its debt at no additional cost so that all the liabilities are in the form of a single bond maturing in exactly 5 years. This was done in such a manner that the new debt was just enough to retire all current liabilities and the former long term debt. That is, your Balance Sheet contains only Owner's Equity and Long Term Debt. The current estimate is that the Market Value of the firm is $29.75MM and that its standard deviation is roughly 23%. (a) What are the Market Values of Equity and Debt? Use the same risk free rate as in question 3 (d). In light of the debt restructuring, one of the largest shareholders in the company asked to speak to you and the CEO to discuss a few opportunities she sees in the market that could benefit all the company stakeholders. The investor asked your help regarding two mutually exclusive investments of $5MM that would be financed exclusively with a bond with similar terms to the outstanding long term debt. The cost of issuing such bond is estimated at 5% of the notional value and it is expected to raise exactly the $5MM needed. The cash flows generated by both investments have present values of $7.5MM. (b) The first investment proposed is such that it will consolidate operations and make the company less risky. The new estimated standard deviation of assets is around 18%. What are the new Market Values of Equity and Debt under this investment? (c) The second investment opportunity introduces a new product, which will make the company substantially riskier; the new estimated standard deviation of assets is 75%. What are the new Market Values of Equity and Debt under this investment? (d) Comment on the results obtained in (b) and (c). Namely, is it the case that all stakeholders will benefit if the firm engages in one of the investments above