) Provide a brief overview of how a change in capital structure (combination of debt and equity) affects the following: (1) V = Value Of Firm (2) FCF = Free Cash Flow (3) WACC = Weighted Average Cost Of Capital (4) re And rd (costs of equity and debt) (5) we And wd (percentages of the firm that are financed with equity and debt respectively) Be sure to identify the ways in which capital structure can affect the weighted average cost of capital and free cash flows. b) Briefly answer the following questions: What is business risk? What factors influence a firm's business risk? What is operating leverage, and how does it affect a firm's business risk? Explain the difference between financial risk and business risk. What is the effect of financial leverage on ROE? c) Assume that the investment banker of Grumpy Gargamel?s Company gave you the following estimated costs of debt for the firm at different capital structures: % Financed With Debt rd 0% 0% 20 10.0% 30 10.5 40 12.0 50 15.0 At 0% debt, the company has 1,000,000 shares outstanding. If the company were to recapitalize, debt would be issued, and the ALL funds received from lenders would be used to repurchase stock (so shares outstanding and price of the stock would change as capital structure changes). Grumpy Gargamel?s has a corporate tax rate of 35%, its unlevered beta (Bu) is 1.0, the risk-free rate is 7 percent, and the market risk premium is 7 percent. Assume the firm has EBIT of $400,000 which will stay fixed forever.,Great. For the last part, I need the table in excel so I can see how you got the numbers. Thanks.,In this spreadsheet I also need Value of Firm, Total Debt, Total Equity, Price of stock, Shares outstanding, and FCF per share...then its done.
Paper#5586 | Written in 18-Jul-2015Price : $25