You're the CFO of Fishing fun Inc. The company has expected EBIT of $ 50 million...

  

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You're the CFO of Fishing fun Inc. The company has expected EBIT of $ 50 million every year forever. The company currently has an all equity capital structure with 694,177 shares outstanding. Company's shares are currently trading in market for $170. The company's past dividend payments are given below: YEAR Dividend per share ($) 2019 12 2018 10 2017 9 2016 7.5 2015 2014 Fishing Fun is evaluating a project to expand its business in South America. This project would enable the company to generate yearly revenue of $ 5 million and incur operating cost of $ 2 million. The project has 5 years life and would cost 10 million to purchase. The additional setup cost of the project would be $100,000. This project will require an initial investment in current assets worth $ 300,000, of which $150,000 will be raised from current liability. The investment in working capital will grow by 10% till 3rd year of the project. The project will be depreciated using 3 years MACRS and can be scraped for $ 1 million after the useful life is over. The average tax rate is 35%. Fishing Fun is also contemplating capital restructuring. They have assessed that the borrowing rate would be 12% if they're levered. The company plans for a target debt-equity ratio of 0.67. Required: i. Evaluate the project's feasibility using different decision rules and decide to accept/reject the project Note: Fishing Fun wants to recovers its initial investment within 3 years. ii. Assuming zero bankruptcy cost (MM case II), what would be the firm's Weighted Average Cost of Capital with all equity capital structure? What would be the firm's Weighted Average Cost of Capital after capital restructuring? Will you go for capital restructuring? Justify your decision. Assuming zero bankruptcy cost (MM Case II), what would be the firm value with all ii. equity capital structure? What would be the firm value after capital restructuring? Will you go for capital restructuring? Justify your decision. If dividend policy remains unchanged, how much dividend the company would pay in 2020? What would be the ex-dividend price in 2020 (assuming other factors are iv. unchanged)? How many shares company may buy back in open market transaction instead of paying cash dividend in 2020? Will you prefer paying cash dividends or will you use the cash instead for stock repurchase? Justify your decision. You're the CFO of Fishing fun Inc. The company has expected EBIT of $ 50 million every year forever. The company currently has an all equity capital structure with 694,177 shares outstanding. Company's shares are currently trading in market for $170. The company's past dividend payments are given below: YEAR Dividend per share ($) 2019 12 2018 10 2017 9 2016 7.5 2015 2014 Fishing Fun is evaluating a project to expand its business in South America. This project would enable the company to generate yearly revenue of $ 5 million and incur operating cost of $ 2 million. The project has 5 years life and would cost 10 million to purchase. The additional setup cost of the project would be $100,000. This project will require an initial investment in current assets worth $ 300,000, of which $150,000 will be raised from current liability. The investment in working capital will grow by 10% till 3rd year of the project. The project will be depreciated using 3 years MACRS and can be scraped for $ 1 million after the useful life is over. The average tax rate is 35%. Fishing Fun is also contemplating capital restructuring. They have assessed that the borrowing rate would be 12% if they're levered. The company plans for a target debt-equity ratio of 0.67. Required: i. Evaluate the project's feasibility using different decision rules and decide to accept/reject the project Note: Fishing Fun wants to recovers its initial investment within 3 years. ii. Assuming zero bankruptcy cost (MM case II), what would be the firm's Weighted Average Cost of Capital with all equity capital structure? What would be the firm's Weighted Average Cost of Capital after capital restructuring? Will you go for capital restructuring? Justify your decision. Assuming zero bankruptcy cost (MM Case II), what would be the firm value with all ii. equity capital structure? What would be the firm value after capital restructuring? Will you go for capital restructuring? Justify your decision. If dividend policy remains unchanged, how much dividend the company would pay in 2020? What would be the ex-dividend price in 2020 (assuming other factors are iv. unchanged)? How many shares company may buy back in open market transaction instead of paying cash dividend in 2020? Will you prefer paying cash dividends or will you use the cash instead for stock repurchase? Justify your decision.