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Assets 392,736,000 Debt 28,816,000 Shares 16,785,752 Revenue 541,500,000 EBIT 42,539,000 Interest 2,185,000 Netinc 24,400,000 Stock Price $33.50 Tax Paid 15,954,000 Tax rate 39.54% Task #2: Consider the following scenario: The management team is considering the possibility of increasing the firm's use of debt capital. They propose to implement a leveraged repurchase, under which the firm would buy back 10% of the outstanding shares, issuing Long-term debt as needed to finance the transaction Repurchase ratio = 10.00% How many shares would be repurchased? ANSWER: 1,678,575 How much would the firm need to borrow to fund this purchase (ignoring transaction costs and market price effects)? ANSWER: 562,322,692 Based on the interest rate estimated in Task #1, how much (in dollars) would this add to the annual interest expense? ANSWER: 44,985,815 Under this proposal, calculate the following (assuming the proposed transaction has been completed): Under this proposal, calculate the following (assuming the proposed transaction has been completed): Shares outstanding Debt Interest Expense Net Income Earnings per share Debt/Assets ratio Debt/Equity ratio Value of Interest Tax Shield Breakeven EBIT 15,107,177 591,138,692 47,170,815 -1,831,193 $1.09 150.52% How much would the proposed restructuring add to the value of the firm? ANSWER: Do you think the proposed restructuring should proceed? Why or why not? ANSWER: Assets 392,736,000 Debt 28,816,000 Shares 16,785,752 Revenue 541,500,000 EBIT 42,539,000 Interest 2,185,000 Netinc 24,400,000 Stock Price $33.50 Tax Paid 15,954,000 Tax rate 39.54% Task #2: Consider the following scenario: The management team is considering the possibility of increasing the firm's use of debt capital. They propose to implement a leveraged repurchase, under which the firm would buy back 10% of the outstanding shares, issuing Long-term debt as needed to finance the transaction Repurchase ratio = 10.00% How many shares would be repurchased? ANSWER: 1,678,575 How much would the firm need to borrow to fund this purchase (ignoring transaction costs and market price effects)? ANSWER: 562,322,692 Based on the interest rate estimated in Task #1, how much (in dollars) would this add to the annual interest expense? ANSWER: 44,985,815 Under this proposal, calculate the following (assuming the proposed transaction has been completed): Under this proposal, calculate the following (assuming the proposed transaction has been completed): Shares outstanding Debt Interest Expense Net Income Earnings per share Debt/Assets ratio Debt/Equity ratio Value of Interest Tax Shield Breakeven EBIT 15,107,177 591,138,692 47,170,815 -1,831,193 $1.09 150.52% How much would the proposed restructuring add to the value of the firm? ANSWER: Do you think the proposed restructuring should proceed? Why or why not

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