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XYZ Company is currently 100% Equity with 10,000 common stocks of Rs. 10 each. However,
company is considering to change its capital structure for next year by including debt financing
along with equity in its capital structure. For this, following debt financing plans are under
consideration:
Plan 1 30% long term debt with interest rate of 10%
Plan 2 50% long term debt with interest rate of 15%
Marginal Tax rate is 20%, EBIT is Rs. 36,000 and preferred dividend is Rs. 5,000.
Requirement I: You are required to complete the given table for 100% equity, 30% debt and
50% debt by using the above information. Suggest which plan is better for the company and
why?
100% equity 30% debt 50% debt
Common Stockholder’s equity (in Rs.)
Number of common Stocks
EBIT
Interest expenses
Earnings before taxes
Income taxes
Earnings after taxes
Earnings available to common stockholders
Earnings per share (EPS)
Requirement II:
Calculate the value of common stock for 50% debt level if required rate of return on investment
in common stock equity is 12% and present value of growth opportunities is Rs. 40. Also
determine whether the stock is overvalued or undervalued if it is trading in the market at Rs. 65.

Any guidelines for solution please.........

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Replies to This Discussion

any idea this assignment

plz share ur ideas over here

ye lo solution raheela nadir

Attachments:

KIYA 36000 PY 30 OR 50 % Debt nhi lyn gye kindly bata do ap

EBIT

plz upload solution file

solution share kr de help each other..thnx

Anyone Have sol

koi solution send kro ??

mujeh bih

ye lo urooj assignment solution

Attachments:

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