Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) Sunshine a manufacturer of consumer plastic products is estimating its capital structure. Book value balance sheet of company is given below: (all numbers in millions)

Assets Liabilities

Current Assets $1000 Debt $2500

Net Fixed Assets $4000 Equity $2500

Total $5000 $5000

In addition, you are provided the following information

i) The debt of company is long-term bonds, coupon rate is 10%. Bonds are presently rated AA with the Yield to Maturity of 12%. The market value bond is 80% of par.

ii) Firm presently has 50 million shares outstanding, present market price per share is $80. Firm pays a dividend of $4 per share, and has P/E ratio of 10.

iii) Stock presently has the β of 1.2. T-Bond rate is 8%.

iv) Firm’s tax rate is .40

2) Moonstar is considering a main change in its capital structure. Firm plans to issue $3 billion in new debt and buy back stock. This will cause the firm’s debt rating to fall to CCC. (CCC debt yields 18% in the market).

a) Determine the cost of equity after this change takes place.

b) Determine the firm’s WACC.

c) Supposing there is no cost of financial distress imposed on the firm, determine the new share price?

d) describe how the cost of financial distress might affect this firm.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914322

Have any Question? 


Related Questions in Basic Finance

What do we mean by the term torque reaction a right angle

What do we mean by the term torque reaction? A right angle nut runner is used to produce 500 ft-lb of torque on a bolt having a 7/8 -9 UNC thread. The tool is 18 in. long. How much reaction force, created by the reaction ...

Mm proposition i with taxesthe maxwell company is financed

MM Proposition I with Taxes The Maxwell Company is financed entirely with equity. The company is considering a loan of $1.72 million. The loan will be repaid in equal installments over the next two years, and it has an i ...

1 discuss the advantages and disadvantages of single-case

1. Discuss the advantages and disadvantages of single-case experimental designs, relative to group designs. 2. What is a case study? Are case studies an example of descriptive, correlational, experimental, or quasi-exper ...

We have seen that federal reserve chairman ben bernanke has

We have seen that Federal Reserve Chairman Ben Bernanke has argued that low interest rates in the United States during the mid-2000s were due to a global savings glut rather than to Federal Reserve policy. In an intervie ...

Charlie is a currency trader and has in inventory 125000

Charlie is a currency trader and has in inventory 125000 Euros that he purchased for $1.17 per Euro. The Euro is now trading at $1.40. What is Charlie's profit or loss on this currency trade? Place your answer in numbers ...

Explain how a protective put is like purchasing insurance

Explain how a protective put is like purchasing insurance on a stock ? Why is choosing an exercise price on a protective put like deciding which deductible to take on an insurance policy? Discuss and compare the two bull ...

In each of 4 years a random sample of 100 voters different

In each of 4 years a random sample of 100 voters (different each year) are asked if they support a political party. The numbers each year who support the party are 41, 32, 35, and 33. (a) Give a 95 percent confidence int ...

Build on the design you created in question to test the

Build on the design you created in Question to test the hypothesis that the effects of watching violent TV shows will be greater for boys than for girls. (What kind of design is this?) Question Design a randomized groups ...

What is the difference between initial and residual preload

What is the difference between initial and residual preload? Typically, what percentage of the work we do with a torque wrench ends up as preload in an individual bolt? Is the preload mentioned in question 2 above initia ...

A firm has previously issued fixed rate noncallable debt

A firm has previously issued fixed rate noncallable debt. Because interest rates are perceived to be temporarily high, the firm would like to have the flexibility of calling the debt later when rates are expected to fall ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen