Estimate which two debt restructures maximize firm value

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Reference no: EM132063948

Currently, the firm is all equity funded with 1,000,000 shares valued at $9 per share and the required return on equity is 7.22%. Income tax rate is 35%. Your banker has indicated that the following leverage restructurings are possible:

Number of shares 850,000 700,000 550,000

Debt Leverage 15.00% 30.00% 45.00%

Interest 7.50% 8.00% 8.50%

ROE 11.00% 12.00% 13.00%

1) Estimate the share prices for the following debt restructures 15%, 30%, and, 45%, respectively:

A $6.07; $6.25; $5.96

B $5.96; $6.25; $6.07

C $6.25; $6.07; $5.96

D $5.96; $6.07; $6.25

E $6.07; $5.96; $6.25

2) Estimate which two debt restructures maximize firm value.

A 30%; 45%

B 15%; 30%

C 0%; 15%

D 45%; 0%

E 0%; 30%

Please show calculation in Excel on how to get the answer and show the function page.

Reference no: EM132063948

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