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Author Question: The Cramden Bus Company is currently all equity financed, but it is considering a leveraged capital ... (Read 286 times)

Jkov05

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The Cramden Bus Company is currently all equity financed, but it is considering a leveraged capital structure, the details of which are presented in the table under the column labeled 'Proposed'. 
Assume that the company generates perpetual annual EBIT. Assume that all cash flows occur at the end of the year and we are currently at the beginning of a year. Assume that taxes are zero. Assume that all of net income is paid out as a dividend. Assume that the debt is perpetual with annual coupons (and yield) of 4%. 
If Cramden recapitalizes, it will use the borrowed funds to repurchase (and cancel) shares. Determine both the value of the company and the value of the company's equity if it recapitalizes.

Capital StructureCapital Structure
CurrentProposed
EBIT $115,000$115,000
Debt, D$0$690,000
Cost of Debt, kd4%
Cost of Equity5%

◦ Company value: $2,875,000; Equity value: $2,185,000
◦ Company value: $2,875,000; Equity value: $2,875,000
◦ Company value: $2,185,000; Equity value: $2,185,000
◦ Company value: $2,300,000; Equity value: $1,610,000
◦ Company value: $2,300,000; Equity value: $2,990,000


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Marked as best answer by Jkov05 on Apr 25, 2021

peilian

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Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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