Reference no: EM131297114
1. See the Proforma provided from the Gilad Publsihing Case Study Solution. Cut and paste this document to the adjacent spreadsheet, and compile a proforma showing the partial expansion financed with 100% debt as follows:
a. Up to $3.0 million in the form of an interest-only 10-year term loan @ 5% p.a., interest paid quarterly. (Note: the pro-forma provided now assumes a rate of 5% on $2,457,000 of new debt financing).
b. Any additional amount over $3.0 million in the form of an interest-only 10-year term Direct loan @ 7%, interest paid quarterly.
2. In the space below, based upon the use of the all-debt financing strategy, for which you prepared the prof-formas in Problem 1 above, compute the firm's post-expansion weighted average cost of raising funds in the capital markets (weighted average cost of capital), making the following further assumptions:
a. The 2008 existing debt is interest-only bank debt with a remaining maturity of ten years at 12/31/2009.
b. The common stock has a par value of $4.00 and an expected post-expansion market value of $20 per share.
3. Estimate the value to the firm of using the all-debt strategy instead of the debt + equity financing strategy shown in the proformas provided (i.e., the difference).
4. Assume that the average debt ratio of publicly traded firms in Gilad's peer group is 45% to 50%. Would you advise using an all-debt financing strategy? Why or why not? (Type your answer below-be brief).
5. Assume that the firm opted for the debt + equity funding strategy per the proforma provided. If sales fell by $3.0 million from 2009 to 2010, compute the reduction in EPS.
6. Would the effect be the same if the firm had opted for the 100% debt funding strategy? Why? (Type your answer below--be brief).
Attachment:- Assignment.rar