#$1.$

Problem $3-21$ Calculating EFN

The most recent financial statements for Crosby, Incorporated, appear below. Sales for $2022$ are projected to grow by $25$ percent. Interest expense will remain constant; the tax rate and the dividend payout rate also will remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

CROSBY, INCORPORATED

$2021$ Income Statement

Sales $ $760,000$

Costs $595,000$

Other expenses $31,000$

Earnings before interest and taxes $ $134,000$

Interest expense $27,000$

Taxable income $ $107,000$

Taxes $(22\%)23,540$

Net income $ $83,460$

Dividends $ $25,038$

Addition to retained earnings $58,422$

CROSBY, INCORPORATED

Balance Sheet as of December $31,2021$

Assets Liabilities and Owners$$ Equity

Current assets Current liabilities

Cash $ $21,940$ Accounts payable $ $56,100$

Accounts receivable $44,880$ Notes payable $15,300$

Inventory $104,960$ Total $ $71,400$

Total $ $171,780$ Long$-$term debt $ $143,000$

Fixed assets Owners$$ equity

Net plant and equipment $ $436,000$ Common stock and paid$-$in surplus $ $121,000$

Retained earnings $272,380$

Total $ $393,380$

Total assets $607,780$ Total liabilities and owners$$ equity $ $607,780$

If the firm is operating at full capacity and no new debt or equity is issued, what external financing is needed to support the $25$ percent growth rate in sales? $($Do not round intermediate calculations and round your answer to the nearest whole number, e$.$g$.,32.)$

#$2.$

Problem $16-9$ Homemade Leverage and WACC

ABC Co$.$ and XYZ Co$.$ are identical firms in all respects except for their capital structure. ABC is all equity financed with $$425,000$ in stock. XYZ uses both stock and perpetual debt; its stock is worth $$212,500$ and the interest rate on its debt is $6$ percent. Both firms expect EBIT to be $$48,000.$ Ignore taxes.

a$.$ Richard owns $$21,250$ worth of XYZ$$s stock. What rate of return is he expecting? $($Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ Suppose Richard invests in ABC Co$.$ and uses homemade leverage to match his cash flow in part $($a$).$ Calculate his total cash flow and rate of return. $($Do not round intermediate calculations. Enter your return answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

c$.$ What is the cost of equity for ABC and XYZ$?($Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

d$.$ What is the WACC for ABC and XYZ$?($Do not round intermediate calculations and enter your answers as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

#$3.$

Problem $16-24$ Stock Value and Leverage

Taco Salad Manufacturing, Inc., plans to announce that it will issue $$2\mathrm{.}13$ million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of $5$ percent. The company is currently all$-$equity and worth $$6\mathrm{.}60$ million with $196,000$ shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $$1\mathrm{.}37$ million are expected to remain constant in perpetuity. The tax rate is $21$ percent.

a$.$ What is the expected return on the company$$s equity before the announcement of the debt issue? $($Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ What is the price per share of the company's equity? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

d$.$ What is the company$$s stock price per share immediately after the repurchase announcement? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

e$-1.$ How many shares will the company repurchase as a result of the debt issue? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

e$-2.$ How many shares of common stock will remain after the repurchase? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

g$.$ What is the required return on the company$$s equity after the restructuring? $($Do not round intermediate calculations and enter your answer as a percent rounded to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$