Which two debt restructures maximize firm value

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Reference no: EM131924012

Currently, the firm is all equity funded with 500000 shares valued at $10 per share and the required return on equity is 15.6%. Income tax rate is 40%. Your banker has indicated that the following leverage restructurings are possible:

Debt Leverage 10.00% 20.00% 30.00%

Interest 8.50% 9.00% 9.50%

ROE 16.00% 17.00% 19.00%

Please do on Excel spreadsheet and show formulas and functions.

1. Estimate the share prices for the following debt restructures 10%, 20%, and, 30%, respectively:

A $10.44; $10.68; $10.48

B $10.68; $10.48; $10.44

C $10.68; $10.44; $10.48

D $10.48; $10.68; $10.44

E $10.44; $10.48; $10.68

2. Estimate which two debt restructures maximize firm value.

A 0%; 10%

B 20%; 30%

C 30%; 0%

D 10%; 20%

E 0%; 20%

Reference no: EM131924012

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