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# Capital Structure and Firm Value

### Capital Structure and Break Even EBIT

A company is comparing two different capital structures: An all equity plan (PLAN 1) and a levered plan (PLAN 2). Under plan 1 the company would have 200,000 shares of stock outstanding. Under plan 2 there would be 90,000 shares of stock outstanding and \$1.5 million in debt outstanding. The interest rate on the debt is 8%

### Beckman Engineering Capital Structure

Stock beta for Beckman Engineering and Associates (BEA) is 1.2 and an expected return of 12.5%. BEA is an all-equity company. BEA's expected earnings per share this coming year \$1.50, with forward P/E ratio of 14. Suppose BEA issues new risk-free debt with 5% yield and repurchases 40% of its stock. Assume perfect capital mar

### Using homemade leverage, how much do you need to borrow in your margin account so that the payoff of your margined purchase of Without stock will be the same as a \$5000 investment in With stock? According to MM Proposition 1, the stock price for With is closest to.

1) Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with 1 million shares outstanding that trade for a price of \$24 per share. With has 2 million shares outstanding and \$12 million dollars in debt at an interest rate of 5%. Assume that MM's perfe

### The Capital Structure of Clorox Company

Evaluate the capital structure policies of The Clorox Company as of fiscal year-end 2007. Decide whether Clorox's use of debt financing is appropriate or whether, given the company's circumstances, it might prudently use more or less financial leverage. You will find information about Clorox, including its annual reports at

### Capital Structure: Stephens Security

Stephens Security has two financing alternatives: (1) A publicly placed \$50 million bond issue. Issuance costs are \$1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20 year life. (2) A \$50 million private placement with a large pension fund. Issuance costs are \$500,000, the bond has a 9.2% annual coupon,

### Assessing Various Financing Choices

1. What distinguishes the internal capital market from the external capital market? 2. What important factor(s) might affect a firm's internal-external financing choice? 3. Why might firms prefer to issue new debt securities rather than new common stock? 4. How does the U.S. tax system affect a firm's financing choices? 5. W

### Consulting firm

A description of the types of problems and issues a management consultant firm will address.

### Capital Structure

McGraw Industries, an established producer of printing equipment, expects its sales to remain flat for the next 3 to 5 years because of both a weak economic outlook and an expectation of little new printing technology development over that period. On the basis of this scenario, the firm's management has been instructed by its bo

### Structure for research proposal

Chocolate.com is a large online company that sells chocolates in the US and Canada. Recently, the sales are declining because many competitors are using the Internet to sell chocolates and their prices are cheaper than Chocolate.com. To better understand the consumer needs and wants and provide better services, the company's CMO

When would a company choose a matrix structure? What are the problems associated with managing this structure, and why might a product-team structure be preferable?

### Organizational structure : key information

8-12 slides with speaker notes Details: As the new manager of training and development you have been asked by your director to prepare a presentation for the next department staff meeting. Your presentation should explain the corporate values, the company culture, and the organizational structure. Additionally, you have been

### Capital Structure Decisions

1. A company has a beta of 1.15. The tax rate is 40% and the company is financed with 45% debt. What is the company's unlevered beta? (The answer is 1.0, but how do you get it?) 2. A company's value of operations is equal to \$500 million after recapitalization (the firm has no debt before the recap). It raised \$200 million in

### Economics of unprofitable firm

You've been hired by an unprofitable firm to determine whether it should shut down its unprofitable operation. The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage (per worker) is \$80, and the price of the firm's output is \$25. The cost of other variable inputs is \$400,000 per day. A

### Develop a Work Breakdown Structure (WBS) for a wildlife sanctuary by a charity

"Raising money for charity for a wildlife sanctuary". Include a description of how and why you would use a (WBS)in a project.

### Culture and Structure

Phase III DB - Culture and Structure Task Type: Discussion Board Deliverable Length: 2-3 paragraphs Meet with other department members, using the Discussion Board. Talk about the differences in organizational structures and how they can impact a company's bottom line. Use examples from your own previous work experience.

### McFrugal Inc: Calculate degree of operating leverage and EPS at different sales levels

McFrugal Inc. has expected sales of \$20 million. Fixed operating costs are \$2.5 million, and the variable cost ratio is 65 percent. McFrugal has outstanding a \$12 million, 8 percent bank loan. The firm also has outstanding 1 million shares of common stock (\$1 par value). McFrugal's tax rate is 40 percent. a) What is McFrugal'

### When would a company use a matrix structure? Is global different from domestic?

When would a company consider using a matrix structure? How does the global matrix differ from a domestic matrix structure? Why is knowledge sharing so important to a global organization?

### Leverage and Capital Structure: Carolina Fastener, INC

Urgent help is needed Integrative-Multiple Leverage measures and prediction Carolina Fastener, INC makes a patented marine bulkhead latch that wholesales for \$6.00. Each latch has variable operating costs of \$3.50. Fixed operating costs are \$50,000 per year. The firm pays \$13,000 interest and preferred dividends of \$7,000 pe

### Three Types of Capital Structure: Equity, Debt, Debt-Equity

A 100% equity structure is always preferable to a debt-equity mix or a 100% debt structure. Comment on the statement. Also discuss the pros and cons of the three types of capital structure.

### AT&T Pre Breakup

When the Bell System was originally broken up, the old AT&T was split into a new AT&T plus seven regional telephone companies. The specific reason for forcing the breakup was to increase the degree of competition in the telephone industry. In the court order that set the terms of the breakup, the capital structures of the su

### \$10 Million Portfolio Structure

DQ 4: Based on what you have learned about the risk/return relationship, the various asset classes and the financial markets, how would you structure a \$10 million portfolio in today's market environment?

### The firm is in a 40% income tax bracket. As the new owner of the firm you are interested in the fine tuning the performance of the company

1. CD Players CD's Batteries Variable product costs \$62 \$1.20 \$0.22 Variable selling expenses 14 0.50 0.10 Variable admin expenses 3 0.05 0.03 Selling prices 140 5.00 0.05 An

### Organizational structure: Example problem

If someone were to open a new psychiatric department in a hospital, for example, what would be the organizational structure? I am unsure what this means and cannot use the internet for references. They go on to ask what would be the financial structures of this department?

### Capital Structure Leverage

The M&M Company wishes to sell 100,000 units of its new product at \$15 apiece. The variable cost is \$12. The company has an operating expense of \$200,000. The interest payment is \$20,000 and the preferred stock dividend is \$30,000. Tax rate is 40%. The company also has 10,000 outstanding common stocks. Please calculate the follo

### Axel Telecommunications' Target Capital Structure

Axel Telecommunications has a target capital structure that consists of 70 percent debt and 30 percent equity. The company anticipates that its capital budget for the upcoming year will be \$3,000,000. If Axel reports net income of \$2,000,000 and it follows a residual dividend payout policy, what will be its dividend payout ratio

### Consumer Focus: Identifying Costs of focus groups

Identifying Costs Consumer Focus is a marketing research firm that organizes focus groups for consumer-product companies. Each focus group has eight individuals who are paid \$50 per session to provide comments on new products. These focus groups meet in hotels, and are led by a trained, independent marketing specialist hired

### Sustainable Growth

Sustainable growth. A firm has decided that its optimal capital structure is 100 percent equity financed. It perceives its optimal dividend policy to be a 40 percent payout ratio. Asset turnover is sales/assets - .8, the profit margin is 10 percent, and the firm has a target growth rate of 5 percent. 1. Is the firm's targe

### Capital structure 18

18. A firm has zero debt in its capital structure. Its overall cost of capital is 10%. The firm is considering a new capital structure with 60% debt. The interest rate on the debt would be 8%. Assuming there are no taxes or other imperfections, its cost of equity capital with the new capital structure would be ______ .

### Capital Structure Problem Set

11. Assuming that all other factors remain unchanged, determine how a firm's breakeven point is affected by each of the following: a. The firm finds it necessary to reduce the price per unit because of competitive conditions in the market. b. The firm's direct labor costs increase as a result of a new labor contract. c.

### Organizational structure :sample question

As mentioned in unit 1, a successful organization understands the cultural differences in various divisions or branches. It uses culture to overcome management challenges, implement strategic initiatives, and develop business opportunities. Organizations with an exceptional culture are usually run by leaders who understand and