Q1. How would you characterize AHP's operating strategy a) What are the implications for AHP's basic...

  

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Q1. How would you characterize AHP's operating strategy a) What are the implications for AHP's basic business risk? b) What are the implications for AHP's financial strategy? Q2. What capital structure would you recommend for AHP? Why? Sales Earnings before interest and taxes 30% Debt $4131.2 50% Debt $4131.2 70% Debt $4131.2 90% Debt 922.2 922.2 922.2 Interest 52.7 87.8 122.9 Profit before taxes 869.5 834.41 799.3 Taxes 417.4 400.5 383.7 Profit after tax 452.1 433.9 415.6 Profit after tax + Interest Dividends on preferred stock 0.4 0.4 0.4 Earnings available to common shareholders 451.7 433.5 415.2 Dividends on common stock 271.0 260.1 249.1 Excess cash 233.0 233.0 233.0 Additional debt (currently $13.9) 362.2 612.9 863.7 Total repurchase (@$30) 595.2 845.9 1096.7 Reduction in common shares (X) 19.8 28.2 36.6 Average common shares outstanding (155.5-X) 135.7 127.3 118.9 Earnings per share $3.33 $3.41 $3.49 Dividends per share $2.00 $2.04 $2.10 Tax rate=48% Common dividend payout ratio = 60% Interest on debt 14% Original number of shares outstanding 155.5 million shares Price for share repurchases = $30 Current debt = 13.9 Q1. How would you characterize AHP's operating strategy a) What are the implications for AHP's basic business risk? b) What are the implications for AHP's financial strategy? Q2. What capital structure would you recommend for AHP? Why? Sales Earnings before interest and taxes 30% Debt $4131.2 50% Debt $4131.2 70% Debt $4131.2 90% Debt 922.2 922.2 922.2 Interest 52.7 87.8 122.9 Profit before taxes 869.5 834.41 799.3 Taxes 417.4 400.5 383.7 Profit after tax 452.1 433.9 415.6 Profit after tax + Interest Dividends on preferred stock 0.4 0.4 0.4 Earnings available to common shareholders 451.7 433.5 415.2 Dividends on common stock 271.0 260.1 249.1 Excess cash 233.0 233.0 233.0 Additional debt (currently $13.9) 362.2 612.9 863.7 Total repurchase (@$30) 595.2 845.9 1096.7 Reduction in common shares (X) 19.8 28.2 36.6 Average common shares outstanding (155.5-X) 135.7 127.3 118.9 Earnings per share $3.33 $3.41 $3.49 Dividends per share $2.00 $2.04 $2.10 Tax rate=48% Common dividend payout ratio = 60% Interest on debt 14% Original number of shares outstanding 155.5 million shares Price for share repurchases = $30 Current debt = 13.9

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Q1 Characterization of AHPs Operating Strategy a AHPs operating strategy seems to involve a significant reliance on debt financing as evidenced by the ... View the full answer