problem1. The mitchem marble company has the target current ratio of 2.0 however has experienced some difficulties financing its expanding sales in the past few months. At present the firm has the current ratio of 2.5 and current assets of $2.5 million. When mitchem expands its receivables and inventories using its short-term line of credit. How much additional short term funding can it borrow before its current ratio standard is reached?
problem2. John and Daphne are saving for their daughter Ellen's college education. Ellen just turned 10 at (t = 0), and she will be accessing college 8 years from now (at t = 8). College tuition and expenditures at State U. are currently $14,500 a year, however they are expected to rise at a rate of 3.5% a year. Ellen must graduate in four years if she takes longer or desires to go to graduate school, she will be on her own. Tuition and other costs will be due at the starting of each school year (at t = 8, 9, 10, and 11). So far, John and Daphne have accumulated $15,000 in their college savings account (at t = 0). Their long-run financial plan is to add an additional $5,000 in each of the next four years (at t = 1, 2, 3, and 4). Then they plan to make 3 equal annual contributions in each of the following years, t = 5, 6, and 7. They anticipate their investment account to earn 9%. How large must the yearly payments at t = 5, 6, and 7 be to cover Ellen's expected college costs? Show all work.
problem3. RECAPITALIZATION: Tapley Inc. currently has a total capital equal to $8 million, has zero debt, is in the 40% federal-plus-state tax bracket, has the net income of $2 million, and pays out 40% of its earnings as dividends. Net income is anticipated to grow at a constant rate of 5% per year, 340,000 shares of stock are outstanding, and the current WACC is 12.70%. The company is considering a recapitalization where it will issue $5 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that when the company goes through with the recapitalization, its before-tax cost of debt will be 11% and its cost of equity will rise to 15.5%.
A.) What is stock's current price per share (before the recapitalization)? $ ____________
B.) Supposing that the company maintains the same payout ratio, what will be its stock price following recapitalization? Suppose that shares are repurchased at the price computed in Part a.