Please consider the following data for the Hercules

Company:

Assets:                  $3 billion

Equity:                  $2 billion

Sales:                 $1.5 billion

EBIT:                  $300 million   

Profit (bt)           $200 million

Profit (at)           $150 million

Payout ratio is:       30%

Number of common stock shares outstanding is: 50 million shares

a) How much interest is Hercules paying on this debt?  

b What is Hercules Company’s current ROE & ROI (return on investment or return on assets)?   

c) i) If Hercules were to float (sell) $500 million in bonds and use the proceeds to buy back 12.5 million common shares back, what would be the new ROE & ROI?   Hint: What is the implied book/market price for a share of Hercules common stock? (Assume all else remains unchanged).

ii) If Hercules were to float (sell) $500 million in bonds and use the proceeds to buy new plant and equipment that would cause sales to increase to $2.5 billion with an increase in COGS of $800 million, what would be the new ROE & ROI? (Assume the tax rate & the interest 'rate' on debt remains unchanged.)

d) What are the sustainable growth rates for part b), c i) and c ii)?

b)                 c i)                  c ii) ____________