cesNoNuns Companies has a 21 percent tax rate and has $350 million in assets, currently financed entirely with equity. Equity is worth$37 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBITdepend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shownbelow:StateProbability of stateExpected EBIT in stateRecession0.25$ 5 millionEBITAverage0.55$ 10 millionBoom0.20$ 17 millionThe firm is considering switching to a 20-percent-debt capital structure, and has determined that it would have to pay an 8 percentyield on perpetual debt in either event. What will be the break-even level of EBIT?Note: Round intermediate calculations. Enter your answer in dollars not millions and round your final answer to the nearest wholedollar amount.

Tax rate = 21%Assets = $350 millionEquity worth = $37 per shareDebt percentage = 20%Interest on debt…

Answered: NoNuns Companies has a 21 percent tax…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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GTB, Incorporated has a 21 percent tax rate and has $100 million in assets, currently financed entirely with equity. Equity is worth $7 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Pessimistic 0.45 $ 5 million Standard deviation in EPS The firm is considering switching to a 40-percent-debt capital structure and has determined that it would have to pay a 12 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if it switches to the proposed capital structure and can take full advantage of the debt interest tax shields? Note: Do not round intermediate calculations and round your final answer to 2 decimal places. Optimistic 0.55 $19 million %
Your company doesn't face any taxes and has $768 million in assets, currently financed entirely with equity. Equity is worth $51.80 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Recession 0.10 $118 million Average Boom 0.75 0.15 $193 million $253 million The firm is considering switching to a 15 percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure
GTB, Inc. has a 25 percent tax rate and has $67.92 million in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Pessimistic Optimistic Probability of state 0.40 0.60 Expected EBIT in state $4,018,600 $16,244,200 The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if GTB switches to the proposed capital structure? (Do not round intermediate calculations and round your final answer to 2 decimal places.) Expected EPS
Your company has a 34% tax rate and has $510 million in assets, currently financed entirely with equity. Equity is worth $41.00 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .25 .55 .20 Expect EBIT in State $60 million $110 million $180 million The firm is considering switching to a 15-percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
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Your company faces a 30% tax rate and has $264 million in assets, currently financed entirely with equity. Equity is worth $9.40 per share, and a book value of equity is equal to the market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Pessimistic Optimistic Probability of State .30 .70 Expect EBIT in State $11.4 million $51.4 million The firm is considering switching to a 25-percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places, except calculation of number of shares which should be rounded to nearest whole number.)
Lo, Incorporated doesn't face any taxes and has $150 million in assets, currently financed entirely with equity. Equity is worth $7 per hare, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend bon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Probability of state Expected EBIT in state Pessimistic 0.45 $5 million Expected EPS Optimistic 0.55 $ 19 million The firm is considering switching to a 40-percent-debt capital structure, and has determined that it would have to pay a 12 percent vield on perpetual debt in either event. What will be the level of expected EPS if the firm switches to the proposed capital structure? Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If the firm is financed by common equity and debt, what is the expected value of common equity next year? Cash flow in the next year Probability Amount Economy Boom 0.3 $110 million Normal 0.4 $101 million Recession 0.3 $61 million $26.8 million $24.7 million $0 -$18.3 million
Your company doesn't face any taxes and has $755 million in assets, currently financed entirely with equity. Equity is worth $50.50 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .20 .60 .20 Expect EBIT in State $105 million $180 million $240 million The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
Suppose you are estimating the WACC for Columbus Inc. It has the following data from its balance sheet: total debt = $200 million; total equity=$120 million. It has 20 million shares outstanding, and its stock is trading at $32 per share. Your analysis shows that the company's current borrowing rate is 7%, and that the cost of equity is 13%. If the company marginal tax rate is 30%, what is its WACC?
Consider the following data (be careful there might be some "unnecessary" information). EBIT = 176 Interest expense = 10 Tax rate = 30% Depreciation = 38 Net working capital = 30 Increase in net working capital = 10 Beginning of period Net PP&E = 50 Capex = 16 What is the free cash flow of the firm that year?
Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, ? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 9.34 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) 45 Print 0 - 100 Done 2 101 3 66 - X

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