Fin 3504 - Chapter 16
Autor: lenyro • November 30, 2016 • Coursework • 299 Words (2 Pages) • 694 Views
Chapter 16 Mini-Case
1. it is clear that the company performs well with minimal risk, because the company have not used debt in the capital structure for over 25 years. However, making a purchase of $95 million worth of land, the use of debt is most likely to increase the total value of the firm. Therefore, the issue of debt is recommended in order to maximize the total market value.
2. Market value balance sheet before the purchase
Market Value BS | |||
Assets | Amount in ($) | Debt and Equity | Amount in ($) |
Assets | $340,200,000 | Equity | $340,200,000 |
Total Assets | $340,200,000 | Total Debt and equity | $340,200,000 |
3.
A. Calculate NPV
NPV= -$95,000,000 + $110,294,118 = $15,294,118
B. Market value balance sheet after the purchase
Market Value BS | |||
Assets | Amount in ($) | Debt and Equity | Amount in ($) |
Assets | $15,294,118 | Equity | $15,294,118 |
Total Assets | $355,494,118 | Total Debt and equity | $355,494,118 |
- The new price per share= ($355,494,118/$9,000,000) =$39.50
- Numbers of share to issue= ($95,000,000/$39.50) =$2,405,063
C. Market Value Balance sheet
Market value balance sheet | |||
Assets | Amount in ($) | Liabilities | Amount in ($) |
Cash | 95,000,000 | ||
Old Assets | 340,200,000 | ||
NPV of projects | 15,294,118 | Equity | 450,494,118 |
Total Assets | $450,494,118 | Total debt and equity | $450,494,118 |
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