10 - A A A A E 211 - X, X A-D-A- AaBbCD AaBb C# AaBbCcl AaBbc AaBbcc Heading 1 Heading 2 Heading 3 Heading 4 Headings Find Replace Select- faiting Didate Fant Paragraph Styles c Now, develop an example that can be presented to COSS'Sent As an tion consider two hypothetical tims, Fim with det financing, and with $10.000 ot 12% dot. Both forms have $20,000 in total essats and a 40% marginal tax rate, and they face the following EHT probability distribution for next you FRIT 0.25 $2.000 050 3.000! 0.25 4.000 (1) Complete the following partial income statements and the set of ratios for Firm Firm Assets 520,000 $20.000 520,000 520 000 $20,000 520,000 Equity $20,000 520.000 $20 000 $10,000 $10,000 $10,000 025 $6,000 025 $12.000 18.000 54000 Probability 0.25 Sales 56000 Operating costs (4.000) Earnings before inforest and taxes 52.000 Inforest (12) Earnings before taxes $2.000 Taxes (40%) 300 Net income 51200 Not income ROFE 60% Common equity 0.50 $9.000 3.000 53000 L02 $3,000 (1.200) $ 1.800 $2.000 1 2008 $800 30 025 39,000 $12.000 16.000.000 $2,000 $4,000 1.2002 $ $ 2.800 11.120) 5 54000 16000 $2400 16.8% 90% 48% 12 0% Droos - 10-A A A A E - E. D A . ct . 1 Heading 1 Heading 2 Headings Heading 4 1 Heading To Paragraph 1 ng SAL ROE 0.0 170 10 Net income Common ER TIE 1 TK 00 Expected ROE Expected TH 10 2.1 21% 0 0 (2) What does this example strate concerning the impact of mancing on expected me of roturn and risk d. With the preceding points in mind, now consider the optimal capital structure for CSS (1) To begin, define the form optimal capital structure (2) Describo brolly, without using numbers, the sequence of events that would occur iOSS 2019 Cengage Learning Al Foghts Reserved May not be care dores, a pokud to patchy and where while in part decided to change its capital structure to include more debt Focus DA ==== 1 Heading 1 1 Heading 2 Heading 3 1 Heading 4 T Honding 5 ope Replace Select Editing Paragraph Styles (3) decided to change its capital structure to include more debt Assume that shares could be repurchased at the current market price of $20 por share Calculato CDSS's expected EPS and TIE at det lovers of 50, 5250,000, 5500,000 $750,000, and $1,000,000 How many shares would remain after recapitalization under each scenano? JEPS = (Net income outstanding shares) What would be the new stock price CDSS recapitalices with $250,000 of debt? 5500,000? $750,000 $1,000,000? Recall that the CDSS pays out all earnings as dividends, so g = 0 Considering only the levels of debt discussed, what is COSS's optimal capital structure? (5) (6) Is EPS maximized at the debt level that maximizes share price? Why? (7) What is the WACC at the optimal capital structure? u originally estimated Describe 10 - A A A A E 211 - X, X A-D-A- AaBbCD AaBb C# AaBbCcl AaBbc AaBbcc Heading 1 Heading 2 Heading 3 Heading 4 Headings Find Replace Select- faiting Didate Fant Paragraph Styles c Now, develop an example that can be presented to COSS'Sent As an tion consider two hypothetical tims, Fim with det financing, and with $10.000 ot 12% dot. Both forms have $20,000 in total essats and a 40% marginal tax rate, and they face the following EHT probability distribution for next you FRIT 0.25 $2.000 050 3.000! 0.25 4.000 (1) Complete the following partial income statements and the set of ratios for Firm Firm Assets 520,000 $20.000 520,000 520 000 $20,000 520,000 Equity $20,000 520.000 $20 000 $10,000 $10,000 $10,000 025 $6,000 025 $12.000 18.000 54000 Probability 0.25 Sales 56000 Operating costs (4.000) Earnings before inforest and taxes 52.000 Inforest (12) Earnings before taxes $2.000 Taxes (40%) 300 Net income 51200 Not income ROFE 60% Common equity 0.50 $9.000 3.000 53000 L02 $3,000 (1.200) $ 1.800 $2.000 1 2008 $800 30 025 39,000 $12.000 16.000.000 $2,000 $4,000 1.2002 $ $ 2.800 11.120) 5 54000 16000 $2400 16.8% 90% 48% 12 0% Droos - 10-A A A A E - E. D A . ct . 1 Heading 1 Heading 2 Headings Heading 4 1 Heading To Paragraph 1 ng SAL ROE 0.0 170 10 Net income Common ER TIE 1 TK 00 Expected ROE Expected TH 10 2.1 21% 0 0 (2) What does this example strate concerning the impact of mancing on expected me of roturn and risk d. With the preceding points in mind, now consider the optimal capital structure for CSS (1) To begin, define the form optimal capital structure (2) Describo brolly, without using numbers, the sequence of events that would occur iOSS 2019 Cengage Learning Al Foghts Reserved May not be care dores, a pokud to patchy and where while in part decided to change its capital structure to include more debt Focus DA ==== 1 Heading 1 1 Heading 2 Heading 3 1 Heading 4 T Honding 5 ope Replace Select Editing Paragraph Styles (3) decided to change its capital structure to include more debt Assume that shares could be repurchased at the current market price of $20 por share Calculato CDSS's expected EPS and TIE at det lovers of 50, 5250,000, 5500,000 $750,000, and $1,000,000 How many shares would remain after recapitalization under each scenano? JEPS = (Net income outstanding shares) What would be the new stock price CDSS recapitalices with $250,000 of debt? 5500,000? $750,000 $1,000,000? Recall that the CDSS pays out all earnings as dividends, so g = 0 Considering only the levels of debt discussed, what is COSS's optimal capital structure? (5) (6) Is EPS maximized at the debt level that maximizes share price? Why? (7) What is the WACC at the optimal capital structure? u originally estimated Describe