# This will be a timed exam with 5 detailed questions and the expert

Document Preview:

FIN 508 Assignment Week 6 _____________________________________________________________________________ 1 6.1. Kerry Corporation needs \$30 million in new capital, which it may acquire by selling bonds at par with 6% coupon or by selling stock at \$40 (net) per share. The current capital structure of Kerry consists of \$250 million (face value) of 3% coupon bonds selling at 80, and 12 million shares of stock selling at \$42 apiece. After the new financing, the EBIT of Kerry is expected to be \$50 million with a standard deviation of \$20 million. The income tax rate of Kerry is 33%. Which method of financing do you recommend? What is the probability that you are right? [Use bonds, 72.41% ?] First, determine the critical EBIT, where the debt financing and equity financing provide equal EPS, by using E* = I + r(NP + F) (10.7) In this equation, I = interest on existing debt = .03(250) = \$7.5 million r = coupon rate on new debt = .06 N = number of shares of stock at present = 12 million P = price per share of new equity = \$40 F = amount of new financing needed = \$30 million E* = 7.5 + .06*(12*40 + 30) = \$38.1 million Since the company expects to make \$50 million in EBIT, which is more than E*, it is better to sell bonds. ? To find the probability that you have made the right decision, find z as z = (38.1 – 50)/20 = -0.595 Draw the normal probability distribution curve, with z = 0 in the middle. The required z = -.595 is to the left of center. The area on the right of z = -.595 represents the probability of making the right decision. From the tables, we get the probability of being right P(being right) = .5 + .2224 + .5(.2257 – .2224) = 72.41% ? To check the answer at Excel, copy and paste the following in any cell. EXCEL =1-NORMDIST(38.1,50,20,TRUE) 6.2. Clinton Company is expecting to have EBIT next year of \$15 million, with a standard deviation of \$10 million. Clinton has \$60 million in bonds with 5% coupon, selling at par. Clinton is retiring \$6 million (face amount) of…

Get 20% Discount on This Paper
Pages (550 words)
Approximate price: -

Try it now!

## Get 20% Discount on This Paper

We'll send you the first draft for approval by at
Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

Paper Helper has assembled a team of highly skilled writers with diverse experience in the online writing circles. Our aim is to become a one stop shop for all your Academic/ online writing. Check out below our amazing service!

## Essay Writing Services

At Paper Helper, we prioritize on all aspects that creates a good grade such as impeccable grammar, proper structure, zero-plagiarism, and conformance to guidelines. The principal purpose of essay writing is to present the author's evaluation concerning a singular subject about which they have made. Since Professionalism is the mother of every success, try our team of experienced writers in helping you complete your essays and other assignments.

You have been trying to join that prestigious institution you long yearned for, but the hurdle of an admission essay has become a stumbling block. We have your back, with our proven team that has gained invaluable experience over time, your chance of joining that institution is now! Just let us work on that essay.How do you write an admission essay? How do you begin the essay? For answers, try Quality Custom Writers Now!

Regardless of whether you're pleased with your composing abilities, it's never an impractical notion to have a second eye go through your work. The best editing services leaves no mistake untouched. We recognize the stuff needed to polish up a writing; as a component of our editing and proofreading, we'll change and refine your write up to guarantee it's amazing, and blunder free. Our group of expert editors will examine your work, giving an impeccable touch of English while ensuring your punctuation and sentence structures are top-notch.

Technical papers

We pride ourselves in having a team of clinical writers. The stringent and rigorous vetting process ensures that only the best persons for job. We hire qualified PhD and MA writers only. We equally offer our team of writers bonuses and incentives to motivate their working spirit in terms of delivering original, unique, and informative content. They are our resources drawn from diverse fields. Therefore your technical paper is in the right hands. Every paper is assessed and only the writers with the technical know-how in that field get to work on it.

College Essay Writing

If all along you have been looking for a trustworthy college essay service provider that provides superb academic papers at reasonable prices, then be glad that you search has ended with us. We are your best choice! Get high-quality college essay writing from our magnificent team of knowledgeable and dedicated writers right now!

Quality Assignment/Homework Help

We give the students premium quality assignments, without alarming them with plagiarism and referencing issues. We ensure that the assignments stick to the rules given by the tutors. We are specific about the deadlines you give us. We assure you that you will get your papers well in advance, knowing that you will review and return it if there are any changes, which should be incorporated.