Kolby Corp. is comparing two different capital structures. Plan I would result in 35,000 shares of...

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Finance

Kolby Corp. is comparing two different capital structures. PlanI would result in 35,000 shares of stock and $100,500 in debt. PlanII would result in 29,000 shares of stock and $301,500 in debt. Theinterest rate on the debt is 7 percent.

a.
Ignoring taxes, compare both of these plans to an all-equityplan assuming that EBIT will be $140,000. The all-equity plan wouldresult in 38,000 shares of stock outstanding. What is the EPS foreach of these plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)
b. In part (a), what are the break-even levels of EBIT for eachplan as compared to that for an all-equity plan? (Do notround intermediate calculations.)
c. Ignoring taxes, at what level of EBIT will EPS be identical forPlans I and II? (Do not round intermediatecalculations.)
d-1. Assuming that the corporate tax rate is 21 percent, what is theEPS for each of the plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)
d-2. Assuming that the corporate tax rate is 21 percent, what arethe break-even levels of EBIT for each plan as compared to that foran all-equity plan? (Do not round intermediatecalculations.)
d-3. Assuming that the corporate tax rate is 21 percent, when willEPS be identical for Plans I and II? (Do not roundintermediate calculations.)
Hunter Corporation expects an EBIT of $25,000 every yearforever. The company currently has no debt and its cost of equityis 12 percent. The corporate tax rate is 22 percent.

a.
What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
b-1. Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 50 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)
b-2. Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-1. What will the value of the company be if takes on debt equal to50 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-2. What will the value of the company be if takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)


Sunrise, Inc., has no debt outstanding and a total market valueof $284,900. Earnings before interest and taxes, EBIT, areprojected to be $44,000 if economic conditions are normal. If thereis strong expansion in the economy, then EBIT will be 18 percenthigher. If there is a recession, then EBIT will be 29 percentlower. The company is considering a $150,000 debt issue with aninterest rate of 7 percent. The proceeds will be used to repurchaseshares of stock. There are currently 7,700 shares outstanding.Ignore taxes for questions a and b. Assume the company has amarket-to-book ratio of 1.0 and the stock price remainsconstant.

a-1.
Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)
a-2. Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
b-1. Assume the firm goes through with the proposedrecapitalization. Calculate the return on equity (ROE) under eachof the three economic scenarios. (Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)
b-2. Assume the firm goes through with the proposedrecapitalization. Calculate the percentage changes in ROE when theeconomy expands or enters a recession. (A negative answershould be indicated by a minus sign. Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)



Assume the firm has a tax rate of 22 percent.
c-1. Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)
c-2. Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
c-3. Calculate the return on equity (ROE) under each of the threeeconomic scenarios assuming the firm goes through with therecapitalization. (Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
c-4. Given the recapitalization, calculate the percentage changes inROE when the economy expands or enters a recession. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)

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Kolby Corp. is comparing two different capital structures. PlanI would result in 35,000 shares of stock and $100,500 in debt. PlanII would result in 29,000 shares of stock and $301,500 in debt. Theinterest rate on the debt is 7 percent. a.Ignoring taxes, compare both of these plans to an all-equityplan assuming that EBIT will be $140,000. The all-equity plan wouldresult in 38,000 shares of stock outstanding. What is the EPS foreach of these plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)b.In part (a), what are the break-even levels of EBIT for eachplan as compared to that for an all-equity plan? (Do notround intermediate calculations.)c.Ignoring taxes, at what level of EBIT will EPS be identical forPlans I and II? (Do not round intermediatecalculations.)d-1.Assuming that the corporate tax rate is 21 percent, what is theEPS for each of the plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)d-2.Assuming that the corporate tax rate is 21 percent, what arethe break-even levels of EBIT for each plan as compared to that foran all-equity plan? (Do not round intermediatecalculations.)d-3.Assuming that the corporate tax rate is 21 percent, when willEPS be identical for Plans I and II? (Do not roundintermediate calculations.)Hunter Corporation expects an EBIT of $25,000 every yearforever. The company currently has no debt and its cost of equityis 12 percent. The corporate tax rate is 22 percent. a.What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)b-1.Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 50 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)b-2.Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)c-1.What will the value of the company be if takes on debt equal to50 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)c-2.What will the value of the company be if takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) Sunrise, Inc., has no debt outstanding and a total market valueof $284,900. Earnings before interest and taxes, EBIT, areprojected to be $44,000 if economic conditions are normal. If thereis strong expansion in the economy, then EBIT will be 18 percenthigher. If there is a recession, then EBIT will be 29 percentlower. The company is considering a $150,000 debt issue with aninterest rate of 7 percent. The proceeds will be used to repurchaseshares of stock. There are currently 7,700 shares outstanding.Ignore taxes for questions a and b. Assume the company has amarket-to-book ratio of 1.0 and the stock price remainsconstant. a-1.Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)a-2.Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)b-1.Assume the firm goes through with the proposedrecapitalization. Calculate the return on equity (ROE) under eachof the three economic scenarios. (Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)b-2.Assume the firm goes through with the proposedrecapitalization. Calculate the percentage changes in ROE when theeconomy expands or enters a recession. (A negative answershould be indicated by a minus sign. Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.) Assume the firm has a tax rate of 22 percent.c-1.Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)c-2.Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)c-3.Calculate the return on equity (ROE) under each of the threeeconomic scenarios assuming the firm goes through with therecapitalization. (Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)c-4.Given the recapitalization, calculate the percentage changes inROE when the economy expands or enters a recession. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)

a.	Ignoring taxes, compare both of these plans to an all-equityplan assuming that EBIT will be $140,000. The all-equity plan wouldresult in 38,000 shares of stock outstanding. What is the EPS foreach of these plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)
b.	In part (a), what are the break-even levels of EBIT for eachplan as compared to that for an all-equity plan? (Do notround intermediate calculations.)
c.	Ignoring taxes, at what level of EBIT will EPS be identical forPlans I and II? (Do not round intermediatecalculations.)
d-1.	Assuming that the corporate tax rate is 21 percent, what is theEPS for each of the plans? (Do not round intermediatecalculations and round your answers to 2 decimal places, e.g.,32.16.)
d-2.	Assuming that the corporate tax rate is 21 percent, what arethe break-even levels of EBIT for each plan as compared to that foran all-equity plan? (Do not round intermediatecalculations.)
d-3.	Assuming that the corporate tax rate is 21 percent, when willEPS be identical for Plans I and II? (Do not roundintermediate calculations.)

a.	What is the current value of the company? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
b-1.	Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 50 percent of itsunlevered value? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)
b-2.	Suppose the company can borrow at 6 percent. What will thevalue of the company be if takes on debt equal to 100 percent ofits unlevered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-1.	What will the value of the company be if takes on debt equal to50 percent of its levered value? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c-2.	What will the value of the company be if takes on debt equal to100 percent of its levered value? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

a-1.	Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)
a-2.	Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
b-1.	Assume the firm goes through with the proposedrecapitalization. Calculate the return on equity (ROE) under eachof the three economic scenarios. (Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)
b-2.	Assume the firm goes through with the proposedrecapitalization. Calculate the percentage changes in ROE when theeconomy expands or enters a recession. (A negative answershould be indicated by a minus sign. Do not round intermediatecalculations and enter your answers as a percent rounded to 2decimal places, e.g., 32.16.)

c-1.	Calculate return on equity (ROE) under each of the threeeconomic scenarios before any debt is issued. (Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)
c-2.	Calculate the percentage changes in ROE when the economyexpands or enters a recession. (A negative answer should beindicated by a minus sign. Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
c-3.	Calculate the return on equity (ROE) under each of the threeeconomic scenarios assuming the firm goes through with therecapitalization. (Do not round intermediate calculationsand enter your answers as a percent rounded to 2 decimal places,e.g., 32.16.)
c-4.	Given the recapitalization, calculate the percentage changes inROE when the economy expands or enters a recession. (Anegative answer should be indicated by a minus sign. Do not roundintermediate calculations and enter your answers as a percentrounded to 2 decimal places, e.g., 32.16.)