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Question: use the table below for problems 22 25 the...

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Use the table below for Problems 22 - 25. The debt and equity columns deseribe different possible capital structures A-G for Company XYZ. The Method 1-3 columns indicate the WACC for capital structures A-G and are consistent with the Modigliani and Miller Propositions EquityMethod Structure Total Assets 8000 4000 1200 1000 800 600 400 400 400 400 400 400 400 400 1 16.13% 13.84% 13.20% 12.24% 1 1.00% 11 .20% 13.00% Method 2Method 3 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 13.00% 5.49% 6.28% 9.72% 9.60% 10.73% 13.00% 22. The market risk premium is 10% and the risk free rate is 4.0%. Using the CAPM, calculate the (unlevered) beta for Company XYZ: B. 0.90 С. 1.00 D. 1.27 E. 1.30 23. Which method(s) imply that the tax shield from debt can at least sometimes reduce WACC? A. Method 1 B. Method 2 C. Method 3 D. Method 1 & Method 2 E. Method 1 & Method 3 24. Assume Company XYZs currently has $1000 in total assets and the higher the firms debt level, the higher the risk of bankruptcy. If the CFO is looking to maximize firm value, Company XYX should: A. borrow an additional $400 in debt B. repay or retire $400 in debt C. borrow an additional $200 in debt D. repay or retire $200 in debt E. make no changes to the capital structure 25. Assume Company XYZs currently has capital structure C under Method 1 where the WACC is 13.20% based on an effective tax rate of 30% and a cost of debt of 18%. There are 200 shares currently outstanding. The company just reported (T-0) FCFF of 300 and FCFE of 250. All cash flows are expected to grow at 20% for each of the next three years, then at 6% beginning in year four (T-4) in perpetuity (or indefinitely). If you were an activist investor trying to gain control of Company XYZ, what is the most you would pay per share for the hostile takeover? A. $6.97 B. $9.62 C. $11.55 D. $15.49 E. $31.36

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