The return on assets for Super Express Ltd is 12.3% pa. Currently the capital structure for Super Express Ltd is 100% equity but management are considering issuing debt. Super Express Ltd has 34,400 shares on offer at a current price of $5.78 per share. Management wishes to issue enough debt capital to repurchase 35% of existing shares at the current share price. a)Calculate the amount of debt that the management of Super Express will be issuing. Give your answer in dollars to the nearest dollar. Debt issued = $ b)Calculate the debt to equity (leverage) ratio of Super Express Ltd after the debt issue. Give your answer rounded to 2 decimal places. Debt to equity ratio =

The return on assets for Super Express Ltd is 12.3% pa. Currently the capital structure for Super Express Ltd is 100% equity but management are considering issuing debt. Super Express Ltd has 34,400 shares on offer at a current price of $5.78 per share. Management wishes to issue enough debt capital to repurchase 35% of existing shares at the current share price. a)Calculate the amount of debt that the management of Super Express will be issuing. Give your answer in dollars to the nearest dollar. Debt issued = $ b)Calculate the debt to equity (leverage) ratio of Super Express Ltd after the debt issue. Give your answer rounded to 2 decimal places. Debt to equity ratio =

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 8P

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Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1,000,000 in debt outstanding. The current cost of equity is 9% and the current cost of debt is 6%. The firm is considering issuing another $3 of debt and using the proceeds of the debt issue to repurchase shares (a pur capital structure change). It is estimated that the cost of the new debt will be 7% and that the cost of equity will rise to 10% with the additional debt. The marginal tax rate is 34% I found the current market value of the firm V= $11,560,000 What will the firm's market value be after the announcement of the new debt issue? (Note that total market value of Debt will be Dsub0 + Dsub1 and the interest costs that must be subtracted from EBIT when calculating the market value of equity must be calculated in two parts and then added. Help!!!
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Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information,answer the following questions: a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think ofborrowing more)b) What is the level of EBIT at which shareholders will be indifferent between the two capital structures, the one with a D/E = 0.5/1 and the other with a D/E of 1?
Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information, answer the following questions: a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think of borrowing more)
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