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Capital Structure Analysis Pettit Printing Company (PPC) 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 $12.30 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 55 % ( based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so g, is zero. Its current cost of equity, rs, is 14%. If it increases leverage, r, will be 16%. If it decreases leverage, r, will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate calculations. Enter your monetary answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places. WACC Total corporate value $ 50% debt % million $ 55% debt % million $ 45% debt % million

Capital Structure Analysis Pettit Printing Company (PPC) 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 $12.30 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 55 % ( based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so g, is zero. Its current cost of equity, rs, is 14%. If it increases leverage, r, will be 16%. If it decreases leverage, r, will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate calculations. Enter your monetary answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places. WACC Total corporate value $ 50% debt % million $ 55% debt % million $ 45% debt % million

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter16: Capital Structure Decisions
Section: Chapter Questions
Problem 9P: Capital Structure Analysis Pettit Printing Company has a total market value of 100 million,...
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Capital Structure Analysis Pettit Printing Company (PPC) 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 $12.30 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 55% (based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so g, is zero. Its current cost of equity, rs, is 14%. If it increases leverage, r, will be 16%. If it decreases leverage, r, will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate calculations. Enter your monetary answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places. WACC Total corporate value $ 50% debt % million $ 55% debt % million $ 45% debt % million Check My Work
Transcribed Image Text:Capital Structure Analysis Pettit Printing Company (PPC) 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 $12.30 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 55% (based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 13% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so g, is zero. Its current cost of equity, rs, is 14%. If it increases leverage, r, will be 16%. If it decreases leverage, r, will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate calculations. Enter your monetary answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places. WACC Total corporate value $ 50% debt % million $ 55% debt % million $ 45% debt % million Check My Work
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