1. Kaelea, Inc., has no debt outstanding and a total market value of $63,000. Earnings before interest and taxes, EBIT, are projected to be $8,600 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 percent higher. If there is a recession, then EBIT will be 34 percent lower.

Kaelea is considering a $21,300 debt issue with a 8 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 4,200 shares

outstanding. Ignore taxes for this problem. Requirement 1: (a) Calculate earnings per share, EPS, under Recession, Normal and Expansion each of the three economic

scenarios before any debt is issued. $2.05; $2.05; $2.05 $1.39; $2.26; $2.80 $2.43; $3.48; $4.13 $1.43; $2.48; $3.13 $1.35; $2.05; $2.48 (b) Calculate the

percentage changes in EPS when the economy expands or enters a recession. -38.20%; 23.59% -34.00%; 21.00% 34.00%; -21.00% -42.40%; 26.19% 42.40%; -26.19% Requirement

2: Assume Kaelea goes through with recapitalization. (a) Calculate earnings per share, EPS, under Recession, Normal and Expansion each of the three economic

scenarios after the recapitalization. $1.43; $2.48; $3.13 $2.48; $2.48; $2.48 $1.39; $2.26; $2.80 $2.35; $3.05; $3.48 $1.35; $2.05; $2.48 (b) Calculate the

percentage changes in EPS when the economy expands or enters a recession. 42.40%; -26.19% -38.20%; 23.59% -34.00%; 21.00% 34.00%; -21.00% -42.40%; 26.19% 2. Kyle

Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 775,000 shares of

stock outstanding. Under Plan II, there would be 525,000 shares of stock outstanding and $9.75 million in debt outstanding. The interest rate on the debt is 7 percent,

and there are no taxes. Requirement 1: (a) Assume that EBIT is $2.8 million, compute the EPS for Plan I. $4.26 $3.61 $7.65 $4.03 $4.99 (b) Assume that EBIT is

$2.8 million, compute the EPS for Plan II. $3.61 $7.65 $4.26 $4.03 $4.99 Requirement 2: (a) Assume that EBIT is $3.3 million, compute the EPS for Plan I. $4.26

$4.03 $4.99 $3.61 $4.76 (b) Assume that EBIT is $3.3 million, compute the EPS for Plan II. $4.03 $3.61 $4.99 $4.76 $4.26 Requirement 3: What is the break-even

EBIT? $2,115,750 $512,236 $2,617,500 $2,800,000 $2,866,992 3. Blue Stripes Co. is comparing two different capital structures. Plan I would result in 8,000 shares of

stock and $410,400 in debt. Plan II would result in 12,450 shares of stock and $250,200 in debt. The interest rate on the debt is 10 percent. The all-equity plan would

result in 19,400 shares of stock outstanding. Ignore taxes for this problem. Required: (a) What is the price per share of equity under Plan I? $24 $46 $26 $36 $34

(b) What is the price per share of equity under Plan II? $26 $46 $24 $36 $34 4. Cede & Co. can borrow at 11.75 percent. Cede currently has no debt, and the cost of

equity is 14.50 percent. The current value of the firm is $673,000. The corporate tax rate is 35 percent. Required: What will the value be if Cede borrows $226,000 and

uses the proceeds to repurchase shares? $382,450 $752,100 $819,900 $899,000 $461,550 5. Fleury Co. has a 34 percent tax rate. Its total interest payment for the year

just ended was $37.4 million. Required: What is the interest tax shield? $12,716,000 $110,000,000 $37,400,000 $25,058,000 $24,684,000 6. Guerin Enterprises has no

debt. Its current total value is $75.2 million. Requirement 1: Ignoring taxes, what will the company’s value be if it sells $34.6 million in debt? $75,200,000

$22,560,000 $175,466,667 $52,640,000 $107,428,571 Requirement 2: Suppose now that the company’s tax rate is 30 percent. Assume debt proceeds are used to repurchase

equity. What will its overall value be if it sells $34.6 million in debt? $109,800,000 $57,160,000 $75,200,000 $22,560,000 $85,580,000 7. Guerin Enterprises has no

debt. Its current total value is $72.8 million. Assume that the company sells $33.2 million in debt. Requirement 1: Ignoring taxes, what is the debt-equity ratio? 0.33

0.84 2.19 1.43 1.67 Requirement 2: Assume the company’s tax rate is 30 percent. What is the debt-equity ratio? 0.60 0.84 1.60 0.68 0.67 8. Becker Industries is

considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 48,000 shares of stock. The debt

and EQUITY OPTION would consist of 24,000 shares of stock plus $340,000 of debt with an interest rate of 6 percent. What is the break-even level of earnings before

interest and taxes between these two options? Ignore taxes. $10,200 $16,800 $40,800 $20,400 $48,960 9. Martin and Sons (M and S) currently is an all equity firm with

44,000 shares of stock outstanding at a market price of $20 a share. The company’s earnings before interest and taxes are $81,000. M and S has decided to add leverage

to their financial operations by issuing $350,000 of debt with a 10% percent interest rate. This $350,000 will be used to repurchase shares of stock. You own 2,200

shares of M and S stock. You also loan out funds at a 10% percent rate of interest. How many of your shares of stock in M and S must you sell to offset the leverage

that the firm is assuming? Assume that you loan out all of the funds you receive from the sale of your stock. 875 shares 963 shares 179 shares 943 shares 788 shares

10. Your firm has expected earnings before interest and taxes of $1,500. Your unlevered cost of capital is 12 percent and your tax rate is 35 percent. You have debt

with both a book and a face value of $2,300. This debt has a 6 percent coupon and pays interest annually. What is your weighted average cost of capital? 10.92 percent

11.45 percent 11.83 percent 11.15 percent 10.98 percent 11. Your portfolio is 320 shares of Sunny Morning, Inc. The stock currently sells for $102 per share. The

company has announced a dividend of $3.30 per share with an ex-dividend date of April 19. Required: Assuming no taxes, how much will your stock be worth on April 19?

$9,891 $32,640 $33,696 $32,112 $31,584 12. Palmer, Inc., has declared a $7.20 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 30

percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Palmer sells for $123 per share, and the stock is about to go ex-

dividend. Required: What do you think the ex-dividend price will be? $117.96 $123.00 $115.80 $130.20 $128.04 13 The owners’ equity accounts for Trans World

International are shown here: Common stock ($1 par value) $ 35,000 Capital surplus 212,000 Retained earnings 700,000

_______________________________________________________________ Total owners’ equity $ 947,000 Requirement 1: Trans World declares a two-for-one stock split.

(a) How many shares are outstanding now? 105,000 35,000 70,000 52,500 17,500 (b) What is the new par value per share? $5.00 per share $1.00 per share $2.00 per

share $0.50 per share $2.00 per share Requirement 2: Trans World declares a one-for-five reverse stock split. (a) How many shares are outstanding now? 175,000

14,000 94,500 7,000 35,000 (b) What is the new par value per share? $2.00 per share $1.00 per share $5.00 per share $2.00 per share $0.50 per share 14. Bermuda

Triangle Corporation (BTC) currently has 370,000 shares of stock outstanding that sell for $100 per share. Assuming no market imperfections or tax effects exist.

Required: Determine the share price and new number of shares outstanding if: (a-1) If BTC has a five-for-three, what is the new share price? $60.00 $72.46 $100.00

$89.29 $166.67 (a-2) If BTC has a five-for-three, how many shares will be outstanding? 838,667 370,000 616,667 222,000 592,000 (b-1) BTC has a 12 percent stock

dividend price per share. $112.00 $138.00 $89.29 $60.00 $100.00 (b-2) BTC has a 12 percent stock dividend shares outstanding. 350,179 392,200 414,400 330,357 370,000

(c-1) BTC has a 38.0 percent stock dividend price per share. $72.46 $89.29 $138.00 $100.00 $138.00 (c-2) BTC has a 38.0 percent stock dividend shares

outstanding. 370,000 510,600 268,116 638,116 440,300 (d-1) BTC has a four-for-seven reverse stock split price per share. $57.14 $172.46 $132.46 $100.00 $175.00

(d-2) BTC has a four-for-seven reverse stock split shares outstanding. 290,714 647,500 581,429 370,000 211,429 15. The balance sheet for Price Cut, Inc., is shown

here in market value terms. There are 27,000 shares of stock outstanding. Market Value Balance Sheet

____________________________________________________________________ Cash $117,000 Fixed assets 489,960 Equity $606,960

____________________________________________________________________ Total $606,960 Total $606,960

____________________________________________________________________ ____________________________________________________________________ The company has declared a

dividend of $1.40 per share. The stock goes ex-dividend tomorrow. Ignore all tax effects. Requirement 1: What is the stock selling for today? $22.48 $18.15 $31.47

$21.08 $29.51 Requirement 2: What will it sell for tomorrow? $21.08 $29.51 $18.15 $22.48 $31.47 16. The company with the common equity accounts shown here has decided

on a two-for-one stock split. The firm’s 31-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 5 percent over last year’s dividend on

the presplit stock. Common stock ($1 par value) $ 530,000 Capital surplus 1,561,000 Retained earnings 3,890,000

___________________________________________________________________ Total owners’ equity $ 5,981,000 Requirement 1: What is the new par value of the stock?

$1.31 per share $0.50 per share $2.00 per share $0.59 per share $1.00 per share Requirement 2: What was last year’s dividend per share? $1.00 $0.31 $0.50 $0.59 $0.62

17. You own 470 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $0.60 a share at the end of this year and then issuing a

final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return is 6 percent. Ignoring taxes, what is the value of one share of this

stock today? $3.44 $3.15 $3.50 $4.43 $3.30 18. Merlo, Inc. maintains a debt-equity ratio of 0.25 and follows a residual dividend policy. The company has after-tax

earnings of $2,500 for the year and needs $2,200 for new investments. What is the total amount Merlo will pay out in dividends this year? $440 $0 $240 $740 $1,700 19.

A firm has a market value equal to its book value. Currently, the firm has excess cash of $200 and other assets of $5,300. Equity is worth $5,500. The firm has 550

shares of stock outstanding and net income of $1,300. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will

be outstanding after the stock repurchase is completed? 530 shares 560 shares 540 shares 550 shares 520 shares 20. Robinson’s has 45,000 shares of stock outstanding

with a par value of $1.00 per share and a market price of $50 a share. The balance sheet shows $45,000 in the common stock account, $510,000 in the paid in surplus

account, and $520,000 in the retained earnings account. The firm just announced a 5-for-2 stock split. How many shares of stock will be outstanding after the split?

94,500 shares 18,000 shares 112,500 shares 180,000 shares 112,000 shares +++++++++++++++++++++++++++++++++++++++++++++++++++++++ +++++++++++++++++++++++++++++++++++++

++++++++++++++++++ Hello, I’m looking for assistance with this assignment. I’m just learning this material now and just want to make sure I’m doing the work correctly.

Could you please show all work for each questions so that I fully understand how to solve each problem. If possible could you please use formulas and NOT EXCEL. When

it comes time to take the exam I need to understand how to solve each problem long-hand. It’s ruff because I’m taking this class online so I don’t have a professor to

ask my questions and make sure my work is correct. If you have any questions please let me know. I”ll be online. Thank you much! Tag- “To be solved by DKhetan”

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1. Kaelea, Inc., has no debt outstanding and a total market value of $63,000. Earnings before interest and taxes, EBIT, are projected to be $8,600 if economic
conditions are normal. If there is strong expansion in the economy, then EBIT will be 21 percent higher. If there is a recession, then EBIT will be 34 percent lower.

Kaelea is considering a $21,300 debt issue with a 8 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 4,200 shares

outstanding. Ignore taxes for this problem. Requirement 1: (a) Calculate earnings per share, EPS, under Recession, Normal and Expansion each of the three economic

scenarios before any debt is issued. $2.05; $2.05; $2.05 $1.39; $2.26; $2.80 $2.43; $3.48; $4.13 $1.43; $2.48; $3.13 $1.35; $2.05; $2.48 (b) Calculate the

percentage changes in EPS when the economy expands or enters a recession. -38.20%; 23.59% -34.00%; 21.00% 34.00%; -21.00% -42.40%; 26.19% 42.40%; -26.19% Requirement

2: Assume Kaelea goes through with recapitalization. (a) Calculate earnings per share, EPS, under Recession, Normal and Expansion each of the three economic

scenarios after the recapitalization. $1.43; $2.48; $3.13 $2.48; $2.48; $2.48 $1.39; $2.26; $2.80 $2.35; $3.05; $3.48 $1.35; $2.05; $2.48 (b) Calculate the

percentage changes in EPS when the economy expands or enters a recession. 42.40%; -26.19% -38.20%; 23.59% -34.00%; 21.00% 34.00%; -21.00% -42.40%; 26.19% 2. Kyle

Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 775,000 shares of

stock outstanding. Under Plan II, there would be 525,000 shares of stock outstanding and $9.75 million in debt outstanding. The interest rate on the debt is 7 percent,

and there are no taxes. Requirement 1: (a) Assume that EBIT is $2.8 million, compute the EPS for Plan I. $4.26 $3.61 $7.65 $4.03 $4.99 (b) Assume that EBIT is

$2.8 million, compute the EPS for Plan II. $3.61 $7.65 $4.26 $4.03 $4.99 Requirement 2: (a) Assume that EBIT is $3.3 million, compute the EPS for Plan I. $4.26

$4.03 $4.99 $3.61 $4.76 (b) Assume that EBIT is $3.3 million, compute the EPS for Plan II. $4.03 $3.61 $4.99 $4.76 $4.26 Requirement 3: What is the break-even

EBIT? $2,115,750 $512,236 $2,617,500 $2,800,000 $2,866,992 3. Blue Stripes Co. is comparing two different capital structures. Plan I would result in 8,000 shares of

stock and $410,400 in debt. Plan II would result in 12,450 shares of stock and $250,200 in debt. The interest rate on the debt is 10 percent. The all-equity plan would

result in 19,400 shares of stock outstanding. Ignore taxes for this problem. Required: (a) What is the price per share of equity under Plan I? $24 $46 $26 $36 $34

(b) What is the price per share of equity under Plan II? $26 $46 $24 $36 $34 4. Cede & Co. can borrow at 11.75 percent. Cede currently has no debt, and the cost of

equity is 14.50 percent. The current value of the firm is $673,000. The corporate tax rate is 35 percent. Required: What will the value be if Cede borrows $226,000 and

uses the proceeds to repurchase shares? $382,450 $752,100 $819,900 $899,000 $461,550 5. Fleury Co. has a 34 percent tax rate. Its total interest payment for the year

just ended was $37.4 million. Required: What is the interest tax shield? $12,716,000 $110,000,000 $37,400,000 $25,058,000 $24,684,000 6. Guerin Enterprises has no

debt. Its current total value is $75.2 million. Requirement 1: Ignoring taxes, what will the company’s value be if it sells $34.6 million in debt? $75,200,000

$22,560,000 $175,466,667 $52,640,000 $107,428,571 Requirement 2: Suppose now that the company’s tax rate is 30 percent. Assume debt proceeds are used to repurchase

equity. What will its overall value be if it sells $34.6 million in debt? $109,800,000 $57,160,000 $75,200,000 $22,560,000 $85,580,000 7. Guerin Enterprises has no

debt. Its current total value is $72.8 million. Assume that the company sells $33.2 million in debt. Requirement 1: Ignoring taxes, what is the debt-equity ratio? 0.33

0.84 2.19 1.43 1.67 Requirement 2: Assume the company’s tax rate is 30 percent. What is the debt-equity ratio? 0.60 0.84 1.60 0.68 0.67 8. Becker Industries is

considering an all equity capital structure against one with both debt and equity. The all equity capital structure would consist of 48,000 shares of stock. The debt

and EQUITY OPTION would consist of 24,000 shares of stock plus $340,000 of debt with an interest rate of 6 percent. What is the break-even level of earnings before

interest and taxes between these two options? Ignore taxes. $10,200 $16,800 $40,800 $20,400 $48,960 9. Martin and Sons (M and S) currently is an all equity firm with

44,000 shares of stock outstanding at a market price of $20 a share. The company’s earnings before interest and taxes are $81,000. M and S has decided to add leverage

to their financial operations by issuing $350,000 of debt with a 10% percent interest rate. This $350,000 will be used to repurchase shares of stock. You own 2,200

shares of M and S stock. You also loan out funds at a 10% percent rate of interest. How many of your shares of stock in M and S must you sell to offset the leverage

that the firm is assuming? Assume that you loan out all of the funds you receive from the sale of your stock. 875 shares 963 shares 179 shares 943 shares 788 shares

10. Your firm has expected earnings before interest and taxes of $1,500. Your unlevered cost of capital is 12 percent and your tax rate is 35 percent. You have debt

with both a book and a face value of $2,300. This debt has a 6 percent coupon and pays interest annually. What is your weighted average cost of capital? 10.92 percent

11.45 percent 11.83 percent 11.15 percent 10.98 percent 11. Your portfolio is 320 shares of Sunny Morning, Inc. The stock currently sells for $102 per share. The

company has announced a dividend of $3.30 per share with an ex-dividend date of April 19. Required: Assuming no taxes, how much will your stock be worth on April 19?

$9,891 $32,640 $33,696 $32,112 $31,584 12. Palmer, Inc., has declared a $7.20 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 30

percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Palmer sells for $123 per share, and the stock is about to go ex-

dividend. Required: What do you think the ex-dividend price will be? $117.96 $123.00 $115.80 $130.20 $128.04 13 The owners’ equity accounts for Trans World

International are shown here: Common stock ($1 par value) $ 35,000 Capital surplus 212,000 Retained earnings 700,000

_______________________________________________________________ Total owners’ equity $ 947,000 Requirement 1: Trans World declares a two-for-one stock split.

(a) How many shares are outstanding now? 105,000 35,000 70,000 52,500 17,500 (b) What is the new par value per share? $5.00 per share $1.00 per share $2.00 per

share $0.50 per share $2.00 per share Requirement 2: Trans World declares a one-for-five reverse stock split. (a) How many shares are outstanding now? 175,000

14,000 94,500 7,000 35,000 (b) What is the new par value per share? $2.00 per share $1.00 per share $5.00 per share $2.00 per share $0.50 per share 14. Bermuda

Triangle Corporation (BTC) currently has 370,000 shares of stock outstanding that sell for $100 per share. Assuming no market imperfections or tax effects exist.

Required: Determine the share price and new number of shares outstanding if: (a-1) If BTC has a five-for-three, what is the new share price? $60.00 $72.46 $100.00

$89.29 $166.67 (a-2) If BTC has a five-for-three, how many shares will be outstanding? 838,667 370,000 616,667 222,000 592,000 (b-1) BTC has a 12 percent stock

dividend price per share. $112.00 $138.00 $89.29 $60.00 $100.00 (b-2) BTC has a 12 percent stock dividend shares outstanding. 350,179 392,200 414,400 330,357 370,000

(c-1) BTC has a 38.0 percent stock dividend price per share. $72.46 $89.29 $138.00 $100.00 $138.00 (c-2) BTC has a 38.0 percent stock dividend shares

outstanding. 370,000 510,600 268,116 638,116 440,300 (d-1) BTC has a four-for-seven reverse stock split price per share. $57.14 $172.46 $132.46 $100.00 $175.00

(d-2) BTC has a four-for-seven reverse stock split shares outstanding. 290,714 647,500 581,429 370,000 211,429 15. The balance sheet for Price Cut, Inc., is shown

here in market value terms. There are 27,000 shares of stock outstanding. Market Value Balance Sheet

____________________________________________________________________ Cash $117,000 Fixed assets 489,960 Equity $606,960

____________________________________________________________________ Total $606,960 Total $606,960

____________________________________________________________________ ____________________________________________________________________ The company has declared a

dividend of $1.40 per share. The stock goes ex-dividend tomorrow. Ignore all tax effects. Requirement 1: What is the stock selling for today? $22.48 $18.15 $31.47

$21.08 $29.51 Requirement 2: What will it sell for tomorrow? $21.08 $29.51 $18.15 $22.48 $31.47 16. The company with the common equity accounts shown here has decided

on a two-for-one stock split. The firm’s 31-cent-per-share cash dividend on the new (postsplit) shares represents an increase of 5 percent over last year’s dividend on

the presplit stock. Common stock ($1 par value) $ 530,000 Capital surplus 1,561,000 Retained earnings 3,890,000

___________________________________________________________________ Total owners’ equity $ 5,981,000 Requirement 1: What is the new par value of the stock?

$1.31 per share $0.50 per share $2.00 per share $0.59 per share $1.00 per share Requirement 2: What was last year’s dividend per share? $1.00 $0.31 $0.50 $0.59 $0.62

17. You own 470 shares of Abco, Inc. stock. The company has stated that it plans on issuing a dividend of $0.60 a share at the end of this year and then issuing a

final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return is 6 percent. Ignoring taxes, what is the value of one share of this

stock today? $3.44 $3.15 $3.50 $4.43 $3.30 18. Merlo, Inc. maintains a debt-equity ratio of 0.25 and follows a residual dividend policy. The company has after-tax

earnings of $2,500 for the year and needs $2,200 for new investments. What is the total amount Merlo will pay out in dividends this year? $440 $0 $240 $740 $1,700 19.

A firm has a market value equal to its book value. Currently, the firm has excess cash of $200 and other assets of $5,300. Equity is worth $5,500. The firm has 550

shares of stock outstanding and net income of $1,300. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will

be outstanding after the stock repurchase is completed? 530 shares 560 shares 540 shares 550 shares 520 shares 20. Robinson’s has 45,000 shares of stock outstanding

with a par value of $1.00 per share and a market price of $50 a share. The balance sheet shows $45,000 in the common stock account, $510,000 in the paid in surplus

account, and $520,000 in the retained earnings account. The firm just announced a 5-for-2 stock split. How many shares of stock will be outstanding after the split?

94,500 shares 18,000 shares 112,500 shares 180,000 shares 112,000 shares +++++++++++++++++++++++++++++++++++++++++++++++++++++++ +++++++++++++++++++++++++++++++++++++

++++++++++++++++++ Hello, I’m looking for assistance with this assignment. I’m just learning this material now and just want to make sure I’m doing the work correctly.

Could you please show all work for each questions so that I fully understand how to solve each problem. If possible could you please use formulas and NOT EXCEL. When

it comes time to take the exam I need to understand how to solve each problem long-hand. It’s ruff because I’m taking this class online so I don’t have a professor to

ask my questions and make sure my work is correct. If you have any questions please let me know. I”ll be online. Thank you much! Tag- “To be solved by DKhetan”

Leave a Reply

Your email address will not be published. Required fields are marked *