WHAT WILL THE WACC BE AFTER RECAPITALIZATION?

What will the WACC be after recapitalization? - Business & Finance
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Bloom Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9 percent. The firm currently has no debt, and its cost of equity is 18 percent. The tax rate is 35 percent. The firm will borrow $80,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization? 1 COMPREHENSIVE TUTORIAL – MGMT 3048 UNITS COVERED – 1 and 2 Maximum Marks: 50 Weightage in Coursework: 20\%1 INSTRUCTIONS TO CANDIDATES 1. There are 2 sections in this tutorial. 2. Each section contains 3 questions. 3. All questions from all sections are compulsory 4. The use of a normal, scientific and a non-programmable financial calculator is allowed. 5. Due date: October 8, 2021. No late submissions are allowed. 6. Your submission should include a student accountability statement. 7. Plagiarism in any form is a serious offense and applicable penalty will be applied as per UWI plagiarism policy if any part of your work is plagiarized. 1 This tutorial is worth 20\% weightage in your entire coursework. This means that if someone, for example, scores 35/50, their score out of 20 will be (35/45) x 20 = 14. Please be guided accordingly. 2 SECTION 1 – (25 MARKS) Question 1 Bloom Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9 percent. The firm currently has no debt, and its cost of equity is 18 percent. The tax rate is 35 percent. The firm will borrow $80,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization? (5 marks) Question 2 A company is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40\% debt capital structure, with 6\% interest per annum. The cost of capital is currently 10\%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company? (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company? (10 marks) Question 3 Bucco Tours Ltd and Storebay Tours Ltd operate in the same geographical area and are close competitors. They are simply mirror images of each other and their financial records reflect the same as well in terms of an identical EBIT of $160,000. However, the fundamental difference is just that while Bucco Tours is fully financed by equity, S t o r e b a y T o u r s follows a D/E ratio of 1. Both firms have assets worth $800,000 each and a share price of $25 each. The current market interest rate is 8\% and both firms are enjoying a tax holiday because of the government policy to promote the tourism sector. Both Bucco Tours Ltd and Storebay Tours Ltd follow a 100\% dividend payout policy. As a young graduate, you are aware that the economy will bounce back in the coming year and knowing that leverage magnifies gains in good times, you have decided to invest $50,000 in Storebay Tours Ltd. You are required to answer the following questions: a) What is your proportional ownership in Storebay Tours Ltd.? b) What is the total cash inflow and rate of return on your investment in Storebay Tours Ltd.? c) Using homemade leverage, how demonstrate how an investor with 150 shares in Bucco Tours Ltd, the unlevered firm can enjoy the same payoff, i.e., total cash flows as that a shareholder with 150 shares enjoy in Storebay Tours Ltd. (10 marks) 3 SECTION 2 – (25 MARKS) Question 1 The National Pension Fund pays no taxes on its capital gains or on its dividend and interest income. Would it be illogical for it to have low-dividend, high growth stocks in its portfolio? Would it be illogical to have government bonds (which are safe but offer a low interest) in its portfolio? Explain (200 words) (10 marks) Question 2 Salsa Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares outstanding at a price of $27.50 per share. Salsa had been following a 100\% dividend payout policy until now but would now like to shift to the Residual Dividend policy for this year. Dividends from this year’s earnings are paid next year. a) What is the EPS and DPS for Salsa under the 100\% dividend payout policy? b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1, will Salsa Inc. be able to pay dividends as per the Residual Dividend Policy? If so, what will be the dividend per share? Investors require a 22.72\% rate of return. Ignore taxes. c) If Salsa Inc. shifts from a 100\% payout policy to the residual dividend policy, what impact will this have on its stock price, assuming the firm earns 22.72\% as its ROE? Support your argument through relevant computations. Which argument of the dividend policy decision would you have demonstrated through this computation? (Assume constant growth rate stock valuation model for computing stock price) (10 marks) Question 3 You own 1,000 shares of Hefty Inc. Hefty follows a constant dividend policy, implying that it will pay the same dividend per share each year indefinitely. The dividend per share is $2.30 per year. You intend to invest in Hefty’s stock and hold it for 2 years. At the same time, you would like to receive at least $17 per share as dividend in the second year. You wish to achieve your goal by following the homemade dividends strategy in a world without taxes. Will you be able to do so? Substantiate your answer through relevant computations. Investors require a return of 15\% on Hefty’s stock. (5 marks)
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Your assignment may be more than 5 paragraphs but not less. INSTRUCTIONS:  To access the FNU Online Library for journals and articles you can go the FNU library link here:  https://www.fnu.edu/library/ In order to n that draws upon the theoretical reading to explain and contextualize the design choices. Be sure to directly quote or paraphrase the reading ce to the vaccine. Your campaign must educate and inform the audience on the benefits but also create for safe and open dialogue. A key metric of your campaign will be the direct increase in numbers.  Key outcomes: The approach that you take must be clear Mechanical Engineering Organic chemistry Geometry nment Topic You will need to pick one topic for your project (5 pts) Literature search You will need to perform a literature search for your topic Geophysics you been involved with a company doing a redesign of business processes Communication on Customer Relations. 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Throughout your nurse practitioner program Vignette Understanding Gender Fluidity Providing Inclusive Quality Care Affirming Clinical Encounters Conclusion References Nurse Practitioner Knowledge Mechanics and word limit is unit as a guide only. The assessment may be re-attempted on two further occasions (maximum three attempts in total). All assessments must be resubmitted 3 days within receiving your unsatisfactory grade. You must clearly indicate “Re-su Trigonometry Article writing Other 5. June 29 After the components sending to the manufacturing house 1. In 1972 the Furman v. Georgia case resulted in a decision that would put action into motion. Furman was originally sentenced to death because of a murder he committed in Georgia but the court debated whether or not this was a violation of his 8th amend One of the first conflicts that would need to be investigated would be whether the human service professional followed the responsibility to client ethical standard.  While developing a relationship with client it is important to clarify that if danger or Ethical behavior is a critical topic in the workplace because the impact of it can make or break a business No matter which type of health care organization With a direct sale During the pandemic Computers are being used to monitor the spread of outbreaks in different areas of the world and with this record 3. Furman v. Georgia is a U.S Supreme Court case that resolves around the Eighth Amendments ban on cruel and unsual punishment in death penalty cases. The Furman v. Georgia case was based on Furman being convicted of murder in Georgia. Furman was caught i One major ethical conflict that may arise in my investigation is the Responsibility to Client in both Standard 3 and Standard 4 of the Ethical Standards for Human Service Professionals (2015).  Making sure we do not disclose information without consent ev 4. Identify two examples of real world problems that you have observed in your personal Summary & Evaluation: Reference & 188. Academic Search Ultimate Ethics We can mention at least one example of how the violation of ethical standards can be prevented. Many organizations promote ethical self-regulation by creating moral codes to help direct their business activities *DDB is used for the first three years For example The inbound logistics for William Instrument refer to purchase components from various electronic firms. During the purchase process William need to consider the quality and price of the components. In this case 4. A U.S. Supreme Court case known as Furman v. Georgia (1972) is a landmark case that involved Eighth Amendment’s ban of unusual and cruel punishment in death penalty cases (Furman v. Georgia (1972) With covid coming into place In my opinion with Not necessarily all home buyers are the same! When you choose to work with we buy ugly houses Baltimore & nationwide USA The ability to view ourselves from an unbiased perspective allows us to critically assess our personal strengths and weaknesses. This is an important step in the process of finding the right resources for our personal learning style. Ego and pride can be · By Day 1 of this week While you must form your answers to the questions below from our assigned reading material CliftonLarsonAllen LLP (2013) 5 The family dynamic is awkward at first since the most outgoing and straight forward person in the family in Linda Urien The most important benefit of my statistical analysis would be the accuracy with which I interpret the data. 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The team is currently using an I would start off with Linda on repeating her options for the child and going over what she is feeling with each option.  I would want to find out what she is afraid of.  I would avoid asking her any “why” questions because I want her to be in the here an Summarize the advantages and disadvantages of using an Internet site as means of collecting data for psychological research (Comp 2.1) 25.0\% Summarization of the advantages and disadvantages of using an Internet site as means of collecting data for psych Identify the type of research used in a chosen study Compose a 1 Optics effect relationship becomes more difficult—as the researcher cannot enact total control of another person even in an experimental environment. Social workers serve clients in highly complex real-world environments. 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