Chapter 16
Problems 1-22
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 16
Question 1
Input Area:
Output Area:
No debt
With debt
Share price = 30.00$
Shares repurchased = 2,500.00
Market value 180,000$
Debt issue 75,000$
Interest rate 7%
Shares outstanding 6,000
Chapter 16
Question 2
Input Area:
Output Area:
No debt with taxes
With debt and taxes
Share price = 30.00$
Shares repurchased = 2,500.00
Market value 180,000$
Debt issue 75,000$
Interest rate 7%
Shares outstanding 6,000
Tax rate 35%
Chapter 16
Question 3
Input Area:
Output Area:
With debt
No debt
TE = MV = 180,000$
With debt
TE = 105,000$
Plan I:
Shares outstanding 210,000
Plan II:
Shares outstanding 150,000
Debt outstanding 2,280,000$
Interest rate 8%
Chapter 16
Question 5
Input Area:
Output Area:
Plan I:
Shares outstanding 210,000
Plan II:
Shares outstanding 150,000
Debt outstanding 2,280,000$
Interest rate 8%
Chapter 16
Question 6
Input Area:
Output Area:
The break even levels of EBIT are the same because of M&M Proposition I.
This break-even level of EBIT is the same as in part (b) again, because of M&M
Proposition (I).
Breakeven EBIT
Plan I:
Shares outstanding 10,000
Plan II:
Shares outstanding 7,600
Debt outstanding 198,000$
Interest rate 10%
All-equity shares 12,000
Chapter 16
Question 7
Input Area:
Output Area:
This shows that when there are no corporate
taxes, the stockholder does not care about the
capital structure decision of the firm. This is
M&M Proposition I without taxes.
Plan I:
Shares outstanding 10,000
Plan II:
Shares outstanding 7,600
Debt outstanding 198,000$
Interest rate 10%
Chapter 16
Question 8
Input Area:
Output Area:
Shares bought 2,100
Interest cash flow 132.00$
Cash flow from shares held 253.71$
shareholders can create their own leverage
or unlever the stock to create the payoff they
desire, regardless of the capital structure the
firm actually chooses.
Debt percentage 30%
Shares outstanding 7,000
Interest rate 8%
Shares owned 100
Chapter 16
Question 9
Input Area:
Output Area:
Stock value 325,000$
Interest rate 8%
Owns XYZ 48,750$
Chapter 16
Question 10
Input Area:
Output Area:
Value of equity 18,000,000$
Chapter 16
Question 11
Input Area:
Output Area:
Due to taxes, EBIT for an all-equity
firm would have to be higher for the
Value of equity 18,000,000$
Tax rate 35%