Debt Policy and Value

EMBA 8500 CASE # 31 12/2/2012 #1 Book measure out of debt Book honour of law commercialize value of debt swordplay backet value of equity Pretax burn up of debt After measure cost of debt rd Market value weights of: Wd Debt We justness bL Levered beta Rf danger-free say Market Premium RM Ke court of equity WACC EBIT - Taxes (34%) EBIAT + derogation - enceinte expense Change in Net working(a) Capital secrete Cash Flow value of Assets ( FCF/WACC) 0% Debt 100% law $ $ 20,000 $ $ 20,000 7.0% 4.62% 0 1 0.8 7% 8.6% 13.88% 13.88% 4,206.00 1,430.04 2,775.96 1,000.00 (1,000.00) 0 2,775.96 19,999.71 25% Debt 75% Equity $ 5,000 $ 15,000 $ 5,000 $ 16,700 7.0% 4.62% 50% Debt 1) As the secure becomes more than leveraged the WACC will change be let debtholders have a 50% Equity stiff claim on funds which accessions the risk for stockholders. This layabout cause the stock to go up $ 10,000 and firms can reduce the taxes paid, thereby freeing up more cash. Debt alike increases the risk $ 10,000 of bankruptcy. $ 10,000 $ 13,400 (Debt * Tax calculate) + BV Equity 7.0% 4.62% (Pretax * (1-Tax Rate)) MV Debt / (MV Debt + MV Equity) MV Equity / (MV Debt + MV Equity) 0.

8 is the b u b L = b u [1+(1-T) * D/E HAMADA Ke = Rf + (b L * RM) CAPM WACC = (Wd * rd) + (We * re) EBIT * Tax Rate EBIT - Tax amount $ 34% $ $ $ $ $ $ 23.0% 42.7% 77.0% 57.3% 0.96 1.19 7% 7% 8.6% 8.6% 15.24% 17.27% 12.79% 11.86% $ 4,206.00 $ 4,206.00 $ 1,430.04 $ 1,430.04 $ 2,775.96 $ 2,775.96 $ 1,000.00 $ 1,000.00 $ (1,000.00) $ (1,000.00) 0 0 $ 2,775.96 $ 2,775.96 $ 21,699.69 $ 23,399.66 Added Tax Shield increase value VL = VU + TD D/E Ratio 29.94% 74.63% V = FCF/WACC M3DISK - Maryann Albert, mike Arendosh, Mark Jarboe, Dan Pool, Ivo Hegelbach, Sean McPherson, Krista Massell 1 If you want to puff a full essay, devote it on our website: Ordercustompaper.com

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