Capital structure analysis-what is the firm wacc

Assignment Help Financial Management

Reference no: EM132024718

Capital Structure Analysis

Pettit Printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $11.16 million, and its tax rate is 15%. Pettit can change its capital structure either by increasing its debt to 70% (based on market values) or decreasing it to 30%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call in its old bonds and replace them with new 9% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change.

The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. Its current cost of equity, rs, is 14%. If it increases leverage, rs will be 16%. If it decreases leverage, rs will be 13%.

Present situation (50% debt):

What is the firm's WACC? Round your answer to three decimal places.

What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.

70% debt:

What is the firm's WACC? Round your answer to two decimal places.

What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.

30% debt:

What is the firm's WACC? Round your answer to two decimal places.

What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.

Reference no: EM132024718

Questions Cloud

What is intrinsic value of equity and value of operations : What is the value of operations? Immediately prior to the repurchase, what is the intrinsic value of equity?

Calculate confidence intervals is a standard normal : Which the population variance is known, the distribution that should be used to calculate confidence intervals is a standard normal distribution?

Discuss the actions taken by Henderson : Discuss how successful leaders excel at understanding themselves and others, at motivating stakeholders to excel

How your newly acquired knowledge and skills have shaped : Demonstrate with at least two examples how your newly acquired knowledge and skills have shaped both your personal and professional development.

Capital structure analysis-what is the firm wacc : Pettit Printing Company has a total market value of $100 million,What is the firm's WACC?

Why people from various cultures behave as they do : Utilizing only the original four dimensions of culture, define them and list a country that fits within each dimension and givean exampleof how.

How many different teams of 4 can be selected : The team must have two women and two men. How many different teams of 4 can be selected?

Do governments and companies in developed countries : Do governments and companies in developed countries have an ethical responsibility to contribute to economic growth & social development in developing countries

Confidence interval for the population mean : Assume the population is normally distributed and use a? t-distribution to construct a 90?% confidence interval for the population mean µ.

User Account

All Pages