48.
Your company has a 38% tax rate and has $800 million in assets, currently financed
entirely with equity. Equity is worth $60 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 20 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt in either
event. What will be the standard deviation in EPS if they switch to the proposed capital
structure?
49.
Your company has a 25 percent tax rate and has $600 million in assets, currently financed
entirely with equity. Equity is worth $20 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 9 percent yield on perpetual debt in either event.
What will be the break-even level of EBIT?
50.
Your company has a 38 percent tax rate and has $800 million in assets, currently financed
entirely with equity. Equity is worth $60 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 20 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt in either
event. What will be the break-even level of EBIT?
51.
Your company faces a 30 percent tax rate and has $300 million in assets, currently
financed entirely with equity. Equity is worth $10 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 9 percent yield on perpetual debt in either event.
What will be the level of expected EPS if they switch to the proposed capital structure?
52.
Your company faces a 34 percent tax rate and has $200 million in assets, currently
financed entirely with equity. Equity is worth $10 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 40 percent debt capital structure, and has
determined that they would have to pay an 8 percent yield on perpetual debt in either
event. What will be the level of expected EPS if they switch to the proposed capital
structure?
53.
Your company faces a 34 percent tax rate and has $150 million in assets, currently
financed entirely with equity. Equity is worth $8 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 12 percent yield on perpetual debt in either
event. What will be the level of expected EPS if they switch to the proposed capital
structure?
54.
Your company faces a 25 percent tax rate and has $750 million in assets, currently
financed entirely with equity. Equity is worth $25 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt in either
event. What will be the standard deviation in EPS if they switch to the proposed capital
structure?
55.
Your company faces a 30 percent tax rate and has $300 million in assets, currently
financed entirely with equity. Equity is worth $10 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 9 percent yield on perpetual debt in either event.
What will be the standard deviation in EPS if they switch to the proposed capital
structure?
56.
Your company faces a 34 percent tax rate and has $150 million in assets, currently
financed entirely with equity. Equity is worth $8 per share, and book value of equity is
equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT
depend upon which state of the economy occurs this year, with the possible values of
EBIT and their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 12 percent yield on perpetual debt in either
event. What will be the standard deviation in EPS if they switch to the proposed capital
structure?
57.
Suppose that Lil John Industries’ equity is currently selling for $64 per share and that there
are 1 million shares outstanding. If the firm also has 20 thousand bonds outstanding,
which are selling at 108 percent of par ($1,000), what are the firm’s current capital
structure weights?
58.
Suppose that Papa Bell Inc.’s equity is currently selling for $30 per share, with 4 million
shares outstanding. If the firm also has 70 thousand bonds outstanding, which are selling
at 95 percent of par ($1,000), what are the firm’s current capital structure weights?
59.
Suppose that Papa Bell Inc.’s equity is currently selling for $95 per share, with 4 million
shares outstanding. If the firm also has 80 thousand bonds outstanding, which are selling
at 91.5 percent of par ($1,000), what are the firm’s current capital structure weights?
60.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $13 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the level of expected EPS if they switch to the proposed capital structure?
61.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $20 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the level of expected EPS if they switch to the proposed capital structure?
62.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $13 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the level of expected EPS if they switch to the proposed capital structure?
63.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $13 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities as shown below:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the standard deviation in EPS if they switch to the proposed capital structure?
64.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $13 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 25 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the standard deviation in EPS if they switch to the proposed capital structure?
65.
Daddi Mac, Inc., doesn’t face any taxes and has $250 million in assets, currently financed
entirely with equity. Equity is worth $20 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 30 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the standard deviation in EPS if they switched to the proposed capital structure?
66.
HiLo, Inc., doesn’t face any taxes and has $100 million in assets, currently financed
entirely with equity. Equity is worth $50 per share, and book value of equity is equal to
market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend
upon which state of the economy occurs this year, with the possible values of EBIT and
their associated probabilities shown as follows:
The firm is considering switching to a 40 percent debt capital structure, and has
determined that they would have to pay a 10 percent yield on perpetual debt. What will be
the level of expected EPS if they switch to the proposed capital structure?