Study Guides (248,269)
Canada (121,449)
MGEC72H3 (4)
Final

# final exam sheets.docx

2 Pages
164 Views

Department
Economics for Management Studies
Course
MGEC72H3
Professor
Victor Barac
Semester
Fall

Description
Chapter 14 L = = 68 New share issued = 11,000-10,000=1000 Cost of capital = required return = discount rate Capital gain surplus = 1000 (\$25-\$1) = \$24,000 Range from 62 to 67 Cost of equity CS = \$11,000 DGM: P0= = RE= Chapter 16 Capital surplus = \$204,000 (old + new surplus) R/E = \$561,500 (old R/E – Selling P x share outstanding) Proposition I = the value of the firm is not affected by changes in the capital structure, the CF of the firm do 1/4 not change. Total equity = \$776,500 g = -1 (using historical data) Proposition II = WACC of the firm is not affected by capital structure Stock split = cheaper and more shares g = ROE x Retention ration Reverse stock split = expensive and less shares = ROE (1 – payout ratio) Case I  No corporate or personal tax = ROE (1 – Do/EPS) RRC currently has outstanding shares = 150,000  No bankruptcy Selling for \$65 SML: RE= Rf– βE[E(R )M– R )f What will share price be? And determine new no. of shares outstanding WACC = RA= (R E + (RD) Cost of debt R E = RA+ (RA– R D RRC has 5 for 3 stock splits = = \$39 new shares = = 250,000 YTM using calc CAPM: RA= R f β AR –MR ) f RRC has 15% stock D = = \$56 new shares = 150,000 (1.15) = 172,500 R E = Rf– βE(1+ )(R ) M R ) f Preferred stock: solve for r =Rp = return on preferred stock Has 4 for 7 reverse stock split = =\$114 new shares = = 85,714 Case II P0= Rp =  Corporate tax Nz Inc predict the earnings in the coming yr = \$75,000  No personal tax and no bankruptcy cost WACC = (RE) + (RD)(1 – T) There are outstanding shares of = 20,000 Maintain a debt-equity ratio = 3 V U all equity no debt E = market value of equity (no. of share outstanding x Price per share) V L V U DT leverage with debt (V L P/S x share outstanding + DT) Max investment fund available without issuing new equity = \$75,000 + (3x\$75, 000) = 300,000 D = market value of debt (no. of outstanding bonds x bond price) V = market value of firm (V = E + D = 1) E = VL– D To keep D/E ratio same, new borrowing should be = \$300,000-75,000=\$225,000 E/V = % financed with equity Suppose the firm use residual policy D/V = % financed with debt WACC = RA= (R E + (RD) (1-T) planned capital expenditures total = \$81,000 R E = RU+ (R U R )D (1 – T) = 3 Chapter 22 Equity = ¼ WACC < R →Udebt financing is advantage Investment = \$6,500,000 Cost of capital or cost of equity = R Debt = ¾ CCA rate = 23% U Equity portion of investment plan = x \$81,000 = \$20,250 Salvage = \$480,000 Capital investment = \$3,000 Residual = \$75,000 - \$20,250 = \$54,750 N = 3 yrs Solely financed with common stock D per share = = \$2.74 Tax = 34% Generate stready OCF = \$5,000 per yr Borrow = 13%. After tax = 0.13(1-.34) = 8.58% Corporate tax = 38% New borrowing = \$81,000 - \$20,250 = \$60,750 PMT lease \$1,300,000. After tax = 1,300,000(1-.34) =\$871,200 Equity required return for Vu= 10% Considering to raise = \$750 debt Total D = \$75,000 - \$81,000 = \$54,750 PVCCATS = x – x = \$1,453,118 Interest on debt = 10% Add to R/E = \$75,000 - \$54,750 = \$20,250 NAL = 6,500,000 – 871,000 - ) – - 1,453,118 CF to debt holder: = 6,500,000 - 871,000 – 1,541,313 – 374,966 - 1,453,118 = \$2,259,403 V = 0 D per share under a residual policy = \$75,000/20,000 = 3.75 U VL= DT = 750(.10) = 75 NAL > 0 the firm should lease it Rose own share = 2,000 NAL < 0 the firm should buy it Receive in 1 yr = \$0.60 per share D CF to equity holder: nd V U EBIT (1-T) = 500(1-.38) = 310 2 yr, the company liquidating D at \$36 per share Max lease PMT acceptance to firm: The required return on company stock = 7.5% VL= EBIT – interest (1-T) = 500 – 75 (1-.38) = 264 NAL = 0 = 6,500,000 – M (1.0858) PVIFA ( 8.58%, 3- 374,966 - 1,453,118 Total value of firm: P 0 + = \$34 M (1.0858) PVIFA ( 8.58%, 3= 6,500,000 – 374,966 - 1,453,118 = 4,671,916 V U 3,100 V = 3,385 st PVIFA ( ): n= 3, r= 8.58%, PV = 2.55, PMT = 1 L Suppose you want in 1 yr = \$650 total in D 8.58, 3 PV of total homemade D over these two yrs? M = = 1,687,009 Value of shareholder’s equity: V U total value of unlevered firm = 3,100 P 1 36/1.075 = \$33 VL= V L D = 3,385 – 750 = 2,635 Total D currently receive = \$.60 x 2000 shares = \$1,200 Max PMT = = 2,556,075 You want in 1 yr = = \$16 share Case III nd What if the firm security deposit of \$210,00 and lease PMT is same CF at 2 yr = \$36(2000 x \$16) = \$72,591 I = 6,500,000 – 210,000=6,290,000  Bankruptcy cost  D/E ↑ bankruptcy ↑, Value of firm ↓, WACC↑ due to more debt added PV of total homemade D = + = \$63,420 Salvage=480,000-210,000=270,000 Everything else same Chapter 15 When no tax then no dep, no pvccats, pmt same, r same Chapter 17 Choosing a venture capital: Lee lnc declared = \$6 per share D  Financial strength is important Asset cost = \$340 Capital gain not taxed  Style is important CCA = 28% N = 10 yrs D tax = 15%  Reference are important Sells for = \$80 per share  Contacts are important Salvage = 0 Tax = 38% About to go ex-D  Exit strategy is important What is ex-D price? Interest = 15%. After tax = .15(1-.38) =9.3% PMT = end of yr Issuing new securities: Ex-D = P –D (1-T) = 80 – 6 (1-.15) = 75  Public traditional negotiated cash offer – firm commitment cash offer, best effort cash Breakeven pt btw lessee and lessor: offer, dutch auction cash offer Owner’s equity of Nz Inc.  Privileged subscription – direct rights offer, standby rights offer PVCCATS = x = \$93 CS (\$1 par value) = \$10,000 → 10,000 unit of shares  Nontraditional cash offer – shelf cash offe
More Less

Related notes for MGEC72H3
Me

Log In

OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view

OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.

Request Course
Submit