Reference no: EM131328292
As Chief Financial Officer of the Magnificent Electronics Corporation (MEC), you are considering a recapitalization plan that would convert MEC from its current all-equity capital structure to one including substantial financial leverage. MEC now has 500,000 shares of common stock outstanding, which are selling for $60 each, and you expect the firm's EBIT to be $2,400,000 per year, for the foreseeable future.
The recapitalization proposal is to issue $15,000,000 worth of long-term debt, at an interest rate of 6.0 percent, and use the proceeds to repurchase 250,000 shares of common stock worth $15,000,000.
Assuming there are no market frictions such as corporate or personal income taxes, calculate the expected return on equity for MEC shareholders, under both the current all-equity capital structure and under the recapitalization plan.
|
Deposit into her retirement fund at the end of each month
: You are helping your friend plan for her retirement. Your friends company has a new pension plan that will deposit $100 at the end of each month into her retirement fund (the first deposit will be made one month from today). how much must she deposit..
|
|
What safeguards should be instituted to reduce the risk
: ACCT20040 - Auditing and Ethical Practice, ACCT20075 - Auditing and Ethics Assessment Task. What action should Fellowes and Associates take to eliminate the potential threats to independence in situations (1) and (2) above? What safeguards should b..
|
|
Observed relationship between debt ratios and profitability
: What industrial and national capital structure patterns are exhibited globally? What factors seem to be driving these patterns?
|
|
How do stock prices generally react to announcements
: How influential are corporate and personal taxes on capital structure? Historically, have changes in American tax rates greatly affected debt ratios?
|
|
Calculate the expected return on equity for mec shareholders
: Calculate the expected return on equity for MEC shareholders, under both the current all-equity capital structure and under the recapitalization plan.
|
|
Calculate the expected dividend yield-capital gains yield
: Assume that it is now January 1, 2017. Wayne-Martin Electric Inc. (WME) has just developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. As a result, WME is expected to experience a 16% ..
|
|
Calculate the number of shares outstanding
: Calculate the number of shares outstanding, the per-share price, and the debt-to-equity ratio for APC if the proposed recapitalization is adopted.
|
|
Define the benefits of ownership of the mobile application
: Examine measurable organizational value (MOV). Identify areas of impact, the desired values, and a time frame for achievement.
|
|
Calculate the number of shares outstanding
: Calculate the number of shares outstanding, the per-share price and the debt-to-equity ratio for CSC if the proposed recapitalization is adopted.
|