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Assume you have just been hired as personalized credit line manager of Pizza castle, a pizza restaurant situated adjacent to campus. The companys EBIT was $50 million snuff it year and is not expected to grow. The faithful is currently financed with both equity; it has 10 million sh ars outstanding. . When you took your corporate Finance course, your teacher stated that most(prenominal) securelys owners would be financially better off if the potents use some(a) debt. When you suggested this to your new boss, he encouraged you to pursue the idea. As a first step, assume that you obtained from the firms investment banker the following estimated costs of debt for the firm at different pileus mental synthesiss: % Financed With Debt, Wd 0% --- 20 8.0% 30 8.5 40 10.0 50 12.0 If the company were to recapitalize, debt would be issued, and the specie get would be used to repurchase well-worn. Pizza Palace is in the 40 percent state-plus-federal corporate tax bracket, its genus Beta is 1.0, the essayless rate is 6 percent, and the market risk premium is 6 percent.

a.Provide a brief overview of capital structure acts. Be for sure to identify the ways in which capital structure brook affect the weighted average cost of capital and destitute cash flows. The basic definitions are: (1) V = rate Of watertight (2) FCF = Free Cas h Flow (3) WACC = Weighted Average approac! h Of Capital (4) Rs And Rd are costs of stock and debt (5) We And Wd are percentages of the firm that are financed with stock and debt. The impact of capital structure on value depends upon the effect of debt on: WACC and/or FCF. Debt holders have a prior necessitate on cash flows relative to stockholders. Debt holders hardened claim increases risk of stockholders residual claim, so the cost of stock, rs, goes up. Firms nates deduct chase expenses. This reduces the taxes paid, frees...If you want to get a encompassing essay, order it on our website: OrderCustomPaper.com

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