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PROBLEMAS CAPITULOS 15, 16 Y HUGO CORONA PLATT A01685094 15 DE MARZO DE 2020

PROFESOR TITULAR: DR. LUIS HUMBERTO S

PROFESOR TUTOR: MTRA. KARLA MACIAS G

ULOS 15, 16 Y 17

UIS HUMBERTO SANTACRUZ MEDINA

KARLA MACIAS GONZALEZ

5. Financial Leverage. Away Corp has interest bearing debt with a market value of $55 million. The company also has 1.6 million shares that sell $43 per share. What is the debt equity ratio for this company based on market values? Market value Shares Price Debt equity ratio

55 1.6 43 0.80 Market value / Shares x Price

7. Financial Leverage Harrison Inc has the following book value balance sheet: Total debt and equity $185,000,000

Current assets

$145,000,000 Total debt Equity Common stock $20,000,000 Capital surplus 70000000 Accumulated retained earnings 120000000 Net fixed assets 250000000 Total shareholders equity 210000000 Total assets 395000000 Total debt and shareholders equity 395000000 a. What is the debt equity ratio based on book values? b. Suppose the market value of the company's debt is $195 million and the market value of equity is $590 million. What is the debt equity ratio based on market values? c. Which is more relevant, the debt equity ratio based on book values or market values? Why? A Debt equity ratio B Debt Market value Debt equity ratio

0.88 Total debt / Total shareholders equity

195000000 590000000 0.33 Debt / Market value

C El debt equity ratio basado en market values porque representa el valor más reciente de debt equity mientras que el primero sólo se actualiza periodicamente

13. Calculating WACC. Shadow Corp has no debt but can borrow at 5.8%. The firm's WACC is currently 9.1% and the tax rate 22% a. What is the company's cost of equity? b. If the company convert to 25% debt what will its cost of equity be? c. If the company convert to 50% debt what will its cost of equity be? d. What is the company's WACC in part b? In part c? A WACC Cost of Equity

9.1% 9.1% Wacc = cost of equity

B WACC Debt Tax Rate New Debt Cost of equity

9.1% 5.8% 22% 25% 10% WACC + WACC - Debt x New debt x 1 - Tax

C WACC Debt Tax Rate New Debt Cost of equity

9.1% 5.8% 22% 50% 12% WACC + WACC - Debt x New debt x 1 - Tax

D WACC 25% WACC 50%

0.086 New Debt / 1 x Cost of equity + New debt / 1 x Debt x 1 - Tax 0.081

14. MM and Taxes. Cede & Co expects its EBIT to be $163,000 every year forever. The company can borrow at 8%. The company currently has no debt and its cost of equity is 15%. If the tax rate is 23% what is the value of the company? What will the value be if the company borrows $185,000 and uses the proceeds to repurchase shares? EBIT Debt Cost of equity Tax Rate Value New Value

163000 8% 15% 23% 836733.33 EBIT x 1 - Tax / Cost of equity 879283.33 Value + Tax x Borrow

21. Cost of Capital. Harris Inc, has equity with a market value o with a market value of $7.3 million. Treasury bills that mature per year and the expected return on the market portfolio is 11 equity is 1.15. The firm pays no taxes. a. What is the company's debt equity ratio? b. What is the firm's weighted average cost of capital? c. What is the cost of capital for an otherwise identical all equi A Market value Debt market value Debt equity ratio B Return Expected Return Beta Cost of equity WACC

18500000 7300000 0.39 Debt market / Market value

4% 11% 1.15 0.1205 0.0977 Cost of equity x Market value

C Lo mismo que el WACC anterior: .0977

25. MM with taxes. Dickson Inc has a debt equity ratio of 2.3. cost of capital is 10% and its pretax cost of debt is 6%. The tax a. What is the company's cost of equity capital? b. What is the company's unlevered cost of equity capital? c. What would the company's weighted average cost of capital ratio was .75? What if it were 1.3? A

quity with a market value of $18.5 million and debt Treasury bills that mature in one year yield 4% n the market portfolio is 11%. The beta of the company

age cost of capital? otherwise identical all equity firm?

ebt market / Market value

st of equity x Market value / Market value + Debt market value + Return x Debt value / Debt value + Market value

a debt equity ratio of 2.3. The firm's weighted average cost of debt is 6%. The tax rate is 24%. uity capital? cost of equity capital? hted average cost of capital be if the firm's debt equity

value + Market value

3.Nonmarketed claims. Charisma Inc has debt outstanding with a face value of $4.5 million. The value of the firm if it were entirely financed by equity would be $18.3 million. The company also has 340,000 shares of stock outstanding that sell at a price of $41 per share. The corporate tax rate is 21%. What is the decrease in the value of the company due to expected bankrupcy costs? Face Value Equity Stock Price Tax rate Value V Decrease value

4500000 18300000 340000 41 21% 19245000 Equity + Tax x Face value 18440000 805000 Value - V

8. Financial Distress. Good Time Company is a regional chain department store. It will remain in business for one more year. The probability of a boom year is 60% and the probability of a recession is 40%. It is projected that the company will generate a total cash flow of $126 million in a boom year and $51 million in a recession. The company's required debt payment at the end of the year is $75 million. The market value of the company's outstanding debt is $58 million. The company pays no taxes. a. What payoff do bondholders expect to receive in an event of a recession? b. What is the promised return on the company's debt? c. What is the expected return on the company's debt? A $51 millones por lo que indica el texto que se daría en caso de entrar en recesión B Debt payment Market value Promised return C Probabilidad recesion Probabilidad boom Cash flow boom Cash flow recesion Expected amount debt Expected return

75000000 58000000 29% Debt payment / Market value - 1

40% 60% 126000000 51000000 96000000 Prob Recesion x Cash flow recesion + Prob Boom x Cash flow boom 66% Expected amoun debt / Market value - 1

Boom x Cash flow boom