06 Jan Gladstone Corporation is about to launch a new product
Q 1 Gladstone Corporation is about to launch a new product. Depending on the success of the new? product, Gladstone may have one of four values next? year: $ 153$153 ?million, $ 136$136 ?million, $ 92$92 ?million, and $ 75$75 million. These outcomes are all equally? likely, and this risk is diversifiable. Gladstone will not make any payouts to investors during the year. Suppose the? risk-free interest rate is 5 %5% and assume perfect capital markets.
a. What is the initial value of? Gladstone's equity without? leverage? Now suppose Gladstone has? zero-coupon debt with a $ 100$100 million face value due next year. b. What is the initial value of? Gladstone's debt? c. What is the? yield-to-maturity of the? debt? What is its expected? return? d. What is the initial value of? Gladstone's equity? What is? Gladstone's total value with? leverage?
Q 2 Suppose Tefco Corp. has a value of $ 133$133 million if it continues to? operate, but has outstanding debt of $ 135$135 million that is now due. If the firm declares? bankruptcy, bankruptcy costs will equal $ 26$26 ?million, and the remaining $ 107$107 million will go to creditors. Instead of declaring? bankruptcy, management proposes to exchange the? firm's debt for a fraction of its equity in a workout. What is the minimum fraction of the? firm's equity that management would need to offer to creditors for the workout to be? successful?
Q 3 Kohwe Corporation plans to issue equity to raise $ 45$45 million to finance a new investment. After making the? investment, Kohwe expects to earn free cash flows of $ 11$11 million each year. Kohwe currently has 5 million shares? outstanding, and has no other assets or opportunities. Suppose the appropriate discount rate for? Kohwe's future free cash flows is 6 %6%?, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of? Kohwe's investment? b. What is? Kohwe's share price? today? Suppose Kohwe borrows the $ 45$45 million instead. The firm will pay interest only on this loan each? year, and maintain an outstanding balance of $ 45$45 million on the loan. Suppose that? Kohwe's corporate tax rate is 30 %30%?, and expected free cash flows are still $ 11$11 million each year. c. What is? Kohwe's share price today if the investment is financed with? debt? Now suppose that with? leverage, Kohwe's expected free cash flows will decline to $ 10$10 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for? Kohwe's future free cash flows is still 6 %6%. d. What is? Kohwe's share price today given the financial distress costs of? leverage?
Q 4 Marpor Industries has no debt and expects to generate free cash flows of $ 15$15 million each year. Marpor believes that if it permanently increases its level of debt to $ 30$30 ?million, the risk of financial distress may cause it to lose some customers and receive less favorable terms from its suppliers. As a? result, Marpor's expected free cash flows with debt will be only $ 14$14 million per year. Suppose? Marpor's tax rate is 40 %40%?, the risk free rate is 6 %6%?, the expected return of the market is 14 %?, and the beta of? Marpor's free cash flows is 1.31.3 ?(with or without? leverage). a. Estimate? Marpor's value without leverage. b. Estimate? Marpor's value with the new leverage.
HOW OUR WEBSITE WORKS
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of
HIGH QUALITY & PLAGIARISM FREE.
To make an Order you only need to click ORDER NOW and we will direct you to our Order Page at WriteDen. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Deadline range from 6 hours to 30 days.
Once done with writing your paper we will upload it to your account on our website and also forward a copy to your email.
Upon receiving your paper, review it and if any changes are needed contact us immediately. We offer unlimited revisions at no extra cost.
Is it Safe to use our services?
We never resell papers on this site. Meaning after your purchase you will get an original copy of your assignment and you have all the rights to use the paper.
Our price ranges from $8-$14 per page. If you are short of Budget, contact our Live Support for a Discount Code. All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.
Please note we do not have prewritten answers. We need some time to prepare a perfect essay for you.