1. Protos, Inc., has no debt outstanding and a total market value of $300,000. Earnings before interest and taxes, EBIT, are projected to be $25,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 50 percent lower. Money is considering a $100,000 debt issue with an interest rate of 6 percent. The proceeds will be used to repurchase shares of stock. There are currently 5,000 shares outstanding. Ignore taxes for this problem.<\/p>\n
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a) Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Also calculate the<\/p>\n
percentage changes in EPS when the economy expands or enters a recession.<\/p>\n
b) Repeat part (a) assuming that Protos goes through with recapitalization. What do you observe?<\/p>\n
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2. \u2003Repeat parts (a) and (b) in Problem 1 assuming Protos has a tax rate of 25 percent.<\/p>\n
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3.- The company with the common equity accounts shown here has declared a stock dividend of 15 percent when the market value of its stock is $45 per share. What effects on the equity accounts will the distribution of the stock dividend have?<\/p>\n
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4.- Sangria Corporation has a target capital structure of 65 percent common stock and 35 percent debt. Its cost of equity is 16 percent, and the cost of debt is 6 percent. The relevant tax rate is 25 percent. What is Sangria\u2019s WACC?<\/p>\n
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5.- Given the following information for Telefonica Co., find the WACC.<\/p>\n
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Assume the company\u2019s tax rate is 15 percent.<\/p>\n
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Debt: 5,000 bonds outstanding, 5 percent coupon, $1,000 par value, 10 years to maturity, selling for 105 percent of par; the bonds make semiannual payments.<\/p>\n
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Common stock:<\/p>\n
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185,000 shares outstanding, selling for $60 per share; the beta is 1.20.<\/p>\n
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Market: 8 percent market risk premium and 4 percent risk-free rate.<\/p>\n
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Task: Case Study<\/strong><\/p>\n \u00b7 Individual task<\/p>\n \u00b7 The student will answer all the questions and problems below.<\/p>\n Formalities:<\/strong><\/p>\n \u00b7 You should submit a document in Excel format.<\/p>\n \u00b7 Font: Arial 11 pts.<\/p>\n \u00b7 Text alignment: Justified.<\/p>\n \n This task assesses the following learning outcomes:<\/strong><\/p>\n \u00b7 Demonstrate a deep understanding of the theory and practices of financing a firm and its capital structure.<\/p>\n \u00b7 Evaluate the financing risk that may result from the chosen debt ratio.<\/p>\n \u00b7 Critically evaluate the dividend payout ratio.<\/p>\n \u00b7 Describe and analyze the trade-off between paying dividends and retaining the profits within the company.<\/p>\n \u00b7 Explain the purpose and procedure related to stock repurchases.<\/p>\n \u00b7 Evaluate and advice on a firm going from private to a public company.<\/p>\n \u00b7 Discuss and analyze the benefits of leasing versus ownership of assets.<\/p>\n \u00b7 Analyze the concepts underlying the firm\u2019s cost of capital (WACC).<\/p>\n \u00a0<\/p>\n \n Questions<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" 1. Protos, Inc., has no debt outstanding and a total market value of $300,000. Earnings before interest and taxes, EBIT, are projected to be $25,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 percent higher. If there is a recession, then EBIT will be 50 … Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-24293","post","type-post","status-publish","format-standard","hentry","category-essaywr"],"_links":{"self":[{"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/posts\/24293","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/comments?post=24293"}],"version-history":[{"count":0,"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/posts\/24293\/revisions"}],"wp:attachment":[{"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/media?parent=24293"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/categories?post=24293"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/academicwritersbay.com\/writings\/wp-json\/wp\/v2\/tags?post=24293"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}