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$8.00 Petitie Printing - Capital structures / Debt
- From Business: Finance , Economics: Financial-Markets
- Closed, but you can still post tutorials
- Due on Jan. 12, 2008
- Asked on Jan 04, 2008 at 2:11:25PM
Q:(Pettit Printing)
Background:
Pettit Printing has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10 % perpetual bonds now selling at par. The company’s EBIT is $13.24 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to $70 million, or decreasing it to $30 million.
If if decides to increase its use of leverage, it must call its old bonds and issue new ones with a 12% coupon. If it decides to decrease its leverage, it will call in its old bonds and replace them with new 8% coupon bonds.
The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. The firm pays out all earnings as dividends; hence its stock is a zero growth stock. If it increases leverage, Ks will be 16%. If it decreases leverage, Ks will be 13%.
( Please see the attached word doc for the rest of this questions information and accompanying questions. )Attachments:
Pettit Printing.doc (26K)
