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Question - PetSmart Inc.. is a publicly traded company involved in selling pet food and accessories. The firm has 15 million shares outstanding, trading at $ 10 a share; it has $ 50 million in 10-year bonds outstanding and interest expenses on the debt amounted to $ 2 million. The firm currently is rated A with a cost of debt of 5% and has a levered beta of 1.56. The riskfree rate is 4.5% and the market risk premium is 4%. The corporate marginal tax rate is 40%.
a. Estimate the current cost of capital for PetSmart.
b. PetSmart announces that it will be borrowing $ 50 million and buying back stock at $10.75 a share. This will lower the rating to BB, with a pre-tax cost of debt of 7%. Assuming that all of the existing debt gets refinanced at this new rate, estimate the value per share after this transaction. (You can assume a growth rate of 3% in perpetuity.)
Identify the type of audit opinion that you will include in your auditor's report for Kangaroo Bedding Ltd for the year ended 30 June 2019
Assume the same facts as in part (d), except that Lori decides not to use § 179 on either asset. Determine the present value of the tax savings
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