Analyzing a Firmâ€™s Capital Structure
Mr. Hillbrandt has learned a lot about the financial side of running the business during the first year with the company and is now contemplating making changes to the corporate capital structure. He needs your assistance one more time.
ABC Golf Equipment Corporation has $10 million in assets (where the market value of the assets is equal to the book value of the assets) and no debt. The companyâ€™s marginal tax rate is currently 35% and has 500,000 shares outstanding. The companyâ€™s earnings before interest and taxes (EBIT) are $3.88 million. The firmâ€™s stock price is $27 per share and the cost of equity is 11%.
The company is thinking of issuing bonds and simultaneously repurchasing a portion of its stock. If the company changes its capital structure from no debt to 25% debt based on market values, the firmâ€™s cost of equity will increase to 13% because of the increased risk. The bonds can be sold at a cost of 9%. The firmâ€™s earnings are not expected to grow over time. All of its earnings will be paid out as dividends.
– 1 million
**Computations (use Excel).**
Make the computations necessary to answer the questions below. Donâ€™t forget that Mr. Hillbrandt does appreciate your step-by-step computations to guide him through the analysis.
What impact will this utilization of this debt have on the value of the company?
Whatâ€™s going to be the companyâ€™s EPS after the recapitalization?
Whatâ€™s going to be the companyâ€™s new stock price?
The $3.88 million EBIT discussed above is determined from this probability distribution.
Whatâ€™s the times interest earned ratio at each probability level?
**Memo (use Word).**
Interpret the analysis already prepared and use the Excel computations as a basis for a memo to the CEO. Write a four or five paragraph memo. Make sure each question listed above is addressed. Start with an **introduction and end with a recommendation.** Each of the four or five paragraphs should have a heading.
**Short Essay (use Word).**
Do research to determine some significant considerations that go into selecting or changing the capital structure of a corporation. Start with an introduction and end with a summary or conclusion. Use headings. Donâ€™t forget to reference your sources. **Maximum length of two pages.**
Each submission should include **two files: (1) An Excel file; and (2) A Word document.** The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.
Influences of Childhood Obesity
Currently, childhood obesity has escalated to epidemic levels globally. In both developing and developed countries, childhood obesity effects are felt by the patient and the country’s healthcare system. Notably, childhood obesity is likely to extend to adult obesity. Childhood effects include low self-esteem, poor academic performance, and challenged emotional welfare while to the country; more resources are required for curbing the impacts of the condition resulting in underdevelopment of the healthcare sector.
Childhood obesity is described as weight levels above the set body mass index (BMI). To an individual, childhood obese individuals are most likely to remain overweight at their adult age. Other effects of the condition are increased chances of communicable diseases such as high blood pressure and obesity. To a child, effects of the condition include low self-esteem, poor academic perforce and negative impacts on their social, physical and emotional wellbeing (Sahoo et al., 2015). As a result, families have to spend more funds to treat the condition thus crippling their economic stability
The increase in childhood obesity as noted above is proportional to high levels of chronic illnesses. As a result, countries are prompted to increase the allocated resources and funds to the healthcare sector to avert these conditions (Sahoo et al., 2015). Resources which could be used to develop the healthcare system of the country are instead being directed to treat and fund the expensive and time-consuming interventions developed to avert the impacts of the conditions (Cunningham, Kramer & Narayan, 2014). As a result, the healthcare system development is slow in regards to modernization. Further, the increase in the chronic illnesses affects the healthcare system due to increased number of patients, yet the facilities and resources are limited.
In conclusion, childhood obesity remains a major challenge globally resulting in more resources being directed to avert the situation. To an individual, childhood obesity is likely to extend to adulthood. Other influences include reduced economic stability and challenged social, physical and emotional wellbeing of the child. To the country’s healthcare system, the influences include more resources required to avert the effects of the condition thus less development in the sector.
Cunningham, S. A., Kramer, M. R., & Narayan, K. V. (2014). Incidence of childhood obesity in the United States. New England Journal of Medicine, 370(5), 403-411.
Sahoo, K., Sahoo, B., Choudhury, A. K., Sofi, N. Y., Kumar, R., & Bhadoria, A. S. (2015). Childhood obesity: causes and consequences. Journal of family medicine and primary care, 4(2), 187.