Columbia Southern University Operations And Supply Chain Management Assignment Help - financial leverage

Question - 1. Becker Industries is considering an all equity capital structure against one with both debt and
equity. The all equity capital structure would consist of 26,000 shares of stock. The debt and
equity option would consist of 13,000 shares of stock plus $245,000 of debt with an interest rate
of 9 percent. What is the break-even level of earnings before interest and taxes between these
two options? Ignore taxes.
2. Pewter & Glass is an all equity firm that has 80,000 shares of stock outstanding. The
company is in the process of borrowing $600,000 at 9 percent interest to repurchase
12,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?
3. Winter's Toyland has a debt-equity ratio of 0.65. The pre-t ...Read More ax cost of debt is 8.7 percent
and the required return on assets is 16.1 percent. What is the cost of equity if you ignore
taxes? (Round to the 2nd decimal XX.XX%)
4. L.A. Clothing has expected earnings before interest and taxes of $48,900, an unlevered
cost of capital of 14.5 percent, and a tax rate of 34 percent. The company also has $8,000
of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value
of this firm? (Round to the nearest cent)
5. Douglass & Frank has a debt-equity ratio of 0.35. The pre-tax cost of debt is 8.2 percent
while the unlevered cost of capital is 13.3 percent. What is the cost of equity if the tax rate
is 39 percent? (Round to the 2nd decimal XX.XX%)
6. The June Bug has a $270,000 bond issue outstanding. These bonds have a 7.5 percent
coupon, pay interest semiannually, and have a current market price equal to 98.6 percent
of face value. The tax rate is 39 percent. What is the amount of the annual interest tax
shield? (Round to the nearest penny)
7. D. L. Tuckers has $21,000 of debt outstanding that is selling at par and has a coupon rate
of 7.5 percent. The tax rate is 32 percent. W hat is the present value of the tax shield?
8. Lamont Corp. uses no debt. The weighted average cost of capital is 11 percent. The
current market value of the equity is $38 million and there are no taxes. W hat is EBIT?
9. Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 10
percent. Bruce currently has no debt, and its cost of equity is 20 percent. The tax rate is 34
percent. What will the value of Bruce & Co. be if the firm borrows $54,000 and uses
the loan proceeds to repurchase shares? ...Read Less

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