Assignment 1 ( All problems must be supported with proper workings) Full Marks =50 1. The most recent financial statements of Happy Inc are shown here: Income Statement ($) Statement of Financial Position ($) Sales 37300 Assets 127000 Debt 30500 Costs 25800 Equity 96500 Taxable 11500 Total 127000 Total 127000 Income Taxes (34%) 3910 Net Income 7590 Assets and costs are proportional to sales. Debt and equity are not. A dividend of $2500 was paid and Happy wants to maintain this D/P ratio. Next year's sales are projected to be $42300. What external funds are needed? (10) 2. Mercer Inc. reported $620 in dividends and $649 in interest expense. There is an increase of retained earnings of $404 and net new equity is $850. The tax rate is 34 percent. Revenues are $7100 and depreciation is $625. Compute EBIT for the company (5) 3. Jack's Shoes has net income of $19,600 in 2018 and owes $8,650 in taxes for the year. The company repaid $4,200 in loan principal and $650 in loan interest during the year. No new funds were borrowed. The depreciation expense is $420. What is the operating cash flow for the year? (5) 4. You own 25% of Unique Vacations, Inc. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $1.5 million to purchase your 1,000 shares of stock. What is the total value of this firm today if you ignore taxes? (5) 5. . The White Hills Co. has expected earnings before interest and taxes of $8, 100, an unlevered cost of capital of 11%, and debt with both a book and market value of $12,000. The debt has an annual 8% coupon. The tax rate is 34%. What is the value of the firm? (5) 6. Explain why the optimal capital structure is one that maximizes the value of marketed claims and minimizes the value of nonmarketed claims. (10) 7. In each of the theories of capital structure, the cost of equity rises as the amount of debt increases. So why don't financial managers use as little debt as possible to keep the cost of equity down? After all, isn't the goal of the firm to maximize share value (and minimize shareholder costs)