ANSWER THE FOLLOWING QUESTIONS 1-4 WITH THE GIVEN BALANCE SHEET ABOVE

NOTE QUESTIONS 2&3 WITH TAX RATE OF 21% (CORPORATE STANDARD) AND QUESTION 4 WITH TAX RATE 20%

Exhibit 1 M&M PIZZA Pro Forma Financial Statement in millions of Franco dollars, except per-share figures) Income Statement Revenue Operating expenses Operating profit 1,500 1,375 125 125 Net Income 125 Dividends Shares outstanding Dividends per share 62.5 2.00 Balance Sheet Current assets Fixed assets Total assets 450 550 1,000 Book debt Book equity Total capital 1,000 1.000 2. What impact does the repurchase plan have on M&M's weighted average cost of capital? Complete the table below and explain your results. Income Statement Debt = 0 Debt = 500 Revenue 1500 1500 Operating expenses 1375 1375 125 125 Operating profit Interest payments Taxes Net profit Dividends Shares outstanding Dividends per share Cost of Capital Cost of debt Beta Cost of equity WACC 4.00% 0.8 CAPM =D/V Kd (1 - t) + (1 - D/V) 4.00% Levered Beta 3. What are the debt and equity claims worth under the alternative scenarios, complete the table below and explain your results? You may note that the present value of a perpetual cash flow stream is equal to the expected payment divided by the associated required return. Which proposal is best for investors? What do you recommend that Miller do? Cash flows Debt = 0 Debt = 500 Debt holders = Interest payments Equity holders = Dividend payments Free cash flow = Op profit Value Debt Equity = Int payments / Kd = Div payments/ke Total = Surn or FCF / WACC Share price 1 Share price 2 = Equity/Shares outstanding = DPS / Ke Value of Firm DE D/V = Value of unlevered + Tax shield =D/ (V-D) = D/V 4. How would your analysis in questions 2 and 3 and recommendation in question 4 change if the new tax law is implemented? Please note that, with corporate taxes, the expected debt-to-equity ratio under the share repurchase plan is 0.588, and the number of remaining shares outstanding is 39.4 million. Complete the same table as in question 2 and 3 with a tax rate of 20%. Exhibit 1 M&M PIZZA Pro Forma Financial Statement in millions of Franco dollars, except per-share figures) Income Statement Revenue Operating expenses Operating profit 1,500 1,375 125 125 Net Income 125 Dividends Shares outstanding Dividends per share 62.5 2.00 Balance Sheet Current assets Fixed assets Total assets 450 550 1,000 Book debt Book equity Total capital 1,000 1.000 2. What impact does the repurchase plan have on M&M's weighted average cost of capital? Complete the table below and explain your results. Income Statement Debt = 0 Debt = 500 Revenue 1500 1500 Operating expenses 1375 1375 125 125 Operating profit Interest payments Taxes Net profit Dividends Shares outstanding Dividends per share Cost of Capital Cost of debt Beta Cost of equity WACC 4.00% 0.8 CAPM =D/V Kd (1 - t) + (1 - D/V) 4.00% Levered Beta 3. What are the debt and equity claims worth under the alternative scenarios, complete the table below and explain your results? You may note that the present value of a perpetual cash flow stream is equal to the expected payment divided by the associated required return. Which proposal is best for investors? What do you recommend that Miller do? Cash flows Debt = 0 Debt = 500 Debt holders = Interest payments Equity holders = Dividend payments Free cash flow = Op profit Value Debt Equity = Int payments / Kd = Div payments/ke Total = Surn or FCF / WACC Share price 1 Share price 2 = Equity/Shares outstanding = DPS / Ke Value of Firm DE D/V = Value of unlevered + Tax shield =D/ (V-D) = D/V 4. How would your analysis in questions 2 and 3 and recommendation in question 4 change if the new tax law is implemented? Please note that, with corporate taxes, the expected debt-to-equity ratio under the share repurchase plan is 0.588, and the number of remaining shares outstanding is 39.4 million. Complete the same table as in question 2 and 3 with a tax rate of 20%