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Maxwell Corporation currently has a capital structure made e…
Maxwell Corporation currently has a capital structure made entirely of equity with total invested capital of $12 million made up of 100,000 shares of common stock. They are considering issuing new debt to replace some of this equity. Maxwell currently has a beta of 2, and is considering replacing either $2 million in equity or $5 million in equity with new debt. Maxwell’s current corporate tax rate is 30%. The interest rate (rd) on $2 million of debt is 7%. The interest rate (rd) on $5 million in debt is 14%. The risk-free rate is 4% and the required return on the market is 10%. Maxwell has an EBIT of $3 million this year. Assume Maxwell has a payout ratio of 35% regardless of its capital structure and that their growth rate in earnings is 5% annually. a. What will be Maxwell’s new levered beta if it replaces $5 million in equity with debt? b. What will be Maxwell’s weighted average cost of capital (WACC) if it utilizes $5 million in debt? c. What would be Maxwell’s earnings per share (EPS) if it issued $5 million in debt? d. Assuming g=5%, what would be Maxwell’s stock price per share if it issued $5 million in debt? (Assume Maxwell just paid a dividend based on their current year earnings)
Maxwell Corporation currently has a capital structure made e…
Questions
Mаxwell Cоrpоrаtiоn currently hаs a capital structure made entirely of equity with total invested capital of $12 million made up of 100,000 shares of common stock. They are considering issuing new debt to replace some of this equity. Maxwell currently has a beta of 2, and is considering replacing either $2 million in equity or $5 million in equity with new debt. Maxwell’s current corporate tax rate is 30%. The interest rate (rd) on $2 million of debt is 7%. The interest rate (rd) on $5 million in debt is 14%. The risk-free rate is 4% and the required return on the market is 10%. Maxwell has an EBIT of $3 million this year. Assume Maxwell has a payout ratio of 35% regardless of its capital structure and that their growth rate in earnings is 5% annually. a. What will be Maxwell’s new levered beta if it replaces $5 million in equity with debt? b. What will be Maxwell’s weighted average cost of capital (WACC) if it utilizes $5 million in debt? c. What would be Maxwell’s earnings per share (EPS) if it issued $5 million in debt? d. Assuming g=5%, what would be Maxwell’s stock price per share if it issued $5 million in debt? (Assume Maxwell just paid a dividend based on their current year earnings)
Mаxwell Cоrpоrаtiоn currently hаs a capital structure made entirely of equity with total invested capital of $12 million made up of 100,000 shares of common stock. They are considering issuing new debt to replace some of this equity. Maxwell currently has a beta of 2, and is considering replacing either $2 million in equity or $5 million in equity with new debt. Maxwell’s current corporate tax rate is 30%. The interest rate (rd) on $2 million of debt is 7%. The interest rate (rd) on $5 million in debt is 14%. The risk-free rate is 4% and the required return on the market is 10%. Maxwell has an EBIT of $3 million this year. Assume Maxwell has a payout ratio of 35% regardless of its capital structure and that their growth rate in earnings is 5% annually. a. What will be Maxwell’s new levered beta if it replaces $5 million in equity with debt? b. What will be Maxwell’s weighted average cost of capital (WACC) if it utilizes $5 million in debt? c. What would be Maxwell’s earnings per share (EPS) if it issued $5 million in debt? d. Assuming g=5%, what would be Maxwell’s stock price per share if it issued $5 million in debt? (Assume Maxwell just paid a dividend based on their current year earnings)
Mаxwell Cоrpоrаtiоn currently hаs a capital structure made entirely of equity with total invested capital of $12 million made up of 100,000 shares of common stock. They are considering issuing new debt to replace some of this equity. Maxwell currently has a beta of 2, and is considering replacing either $2 million in equity or $5 million in equity with new debt. Maxwell’s current corporate tax rate is 30%. The interest rate (rd) on $2 million of debt is 7%. The interest rate (rd) on $5 million in debt is 14%. The risk-free rate is 4% and the required return on the market is 10%. Maxwell has an EBIT of $3 million this year. Assume Maxwell has a payout ratio of 35% regardless of its capital structure and that their growth rate in earnings is 5% annually. a. What will be Maxwell’s new levered beta if it replaces $5 million in equity with debt? b. What will be Maxwell’s weighted average cost of capital (WACC) if it utilizes $5 million in debt? c. What would be Maxwell’s earnings per share (EPS) if it issued $5 million in debt? d. Assuming g=5%, what would be Maxwell’s stock price per share if it issued $5 million in debt? (Assume Maxwell just paid a dividend based on their current year earnings)
Mаxwell Cоrpоrаtiоn currently hаs a capital structure made entirely of equity with total invested capital of $12 million made up of 100,000 shares of common stock. They are considering issuing new debt to replace some of this equity. Maxwell currently has a beta of 2, and is considering replacing either $2 million in equity or $5 million in equity with new debt. Maxwell’s current corporate tax rate is 30%. The interest rate (rd) on $2 million of debt is 7%. The interest rate (rd) on $5 million in debt is 14%. The risk-free rate is 4% and the required return on the market is 10%. Maxwell has an EBIT of $3 million this year. Assume Maxwell has a payout ratio of 35% regardless of its capital structure and that their growth rate in earnings is 5% annually. a. What will be Maxwell’s new levered beta if it replaces $5 million in equity with debt? b. What will be Maxwell’s weighted average cost of capital (WACC) if it utilizes $5 million in debt? c. What would be Maxwell’s earnings per share (EPS) if it issued $5 million in debt? d. Assuming g=5%, what would be Maxwell’s stock price per share if it issued $5 million in debt? (Assume Maxwell just paid a dividend based on their current year earnings)
COPY the wоrd thаt is spelled cоrrectly. (Use ALL CAPS) INCENTIVE INSENTIVE INCENTIV INSCENTIVE
Dаvid Snider Inc. is cоnsidering when tо hаrvest its mоldy breаd supply for antibiotics. It has calculated that the current NPV dollars for harvesting the bread are increasing according to the following schedule. When should the firm harvest the bread? The cost of capital for the firm is 14 percent. NPV increase if harvested next year over that of harvesting now 25% NPV increase if harvested year 2 over that of harvesting year 1 20% NPV increase if harvested year 3 over that of harvesting year 2 17% NPV increase if harvested year 4 over that of harvesting year 3 13% NPV increase if harvested year 5 over that of harvesting year 4 10%