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Adrian Tutoring (AT), a private company, has 500,000 shares outstanding with no debt. AT's current EBIT of $500,000 is not expected to grow in the near future. If AT's stock price is $8 and tax-rate is 30%, then estimate AT's weighted average cost of capital (WACC). (4 marks) AT is considering to sell $1 M of bonds and simultaneously buyback shares. Assuming debt-rate of 7%, determine the following after restructuring: Enterprise Value, Share Price and WACC. (7 marks) Based on above, discuss how leverage can be advantageous and disadvantageous to common shareholders. (4 marks) Now suppose that AT has $400,000 of preferred shares outstanding that have a yield of 8% on par and are callable at a 5% premium. If new issues will incur 2% flotation costs, then at what interest rate would AT refinance? (4 marks) Adrian Tutoring (AT), a private company, has 500,000 shares outstanding with no debt. AT's current EBIT of $500,000 is not expected to grow in the near future. If AT's stock price is $8 and tax-rate is 30%, then estimate AT's weighted average cost of capital (WACC). (4 marks) AT is considering to sell $1 M of bonds and simultaneously buyback shares. Assuming debt-rate of 7%, determine the following after restructuring: Enterprise Value, Share Price and WACC. (7 marks) Based on above, discuss how leverage can be advantageous and disadvantageous to common shareholders. (4 marks) Now suppose that AT has $400,000 of preferred shares outstanding that have a yield of 8% on par and are callable at a 5% premium. If new issues will incur 2% flotation costs, then at what interest rate would AT refinance? (4 marks)

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