Task1. A company is trying to decide whether to revise its target capital structure. Currently, it targets 50% debt and 50% equity. However, it is considering changing the mix to 70% debt and 30% equity. Their debt currently has an after-tax cost of 6% and the equity costs those 12%. They do not have any preferred stock.
A. What is their current WACC?
B. Supposing that the cost of debt and equity remain unchanged, what will be their WACC if they increase debt to 70% as proposed?
Task2. Assume today’s settlement price on the CME EUR futures contract is $1.3000/EUR. You have a long position in one contract of EUR 125,000. Your performance bond account currently has a beginning balance of $3,250. The next three days’ settlement prices are $1.2815, $1.2955, and $1.3000. Evaluate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.
Task3. Infants’ toy inc. lists fixed assets of $25 million on its balance sheet. The firm's fixed assets were recently appraised at $32 million. EZ toy Infants’ balance sheet also lists current assets at $10 million. Current assets were appraised at $11 million. Current liabilities' book and market values stand at $6 million and the firm's long term debt is $15 million. Evaluate the book and market values of the firm's stockholder equity. Construct the book value and market value balance sheet for Infants’ toy Inc.