Stephenson Real Estate Recapitalization

Question No.1

Through analyzing the situation Stephenson should finance the purchase of land by using debt financing of $50 million. The reason for selecting the debt financing is that interest payments are deductible in tax. Moreover, the amount of debt in the capital of the organization reduces the amount of income that is taxable. The debt financing approach form tax shield which means that the value of the firm will increase. The business is also highly financed through equity and it would be appropriate for the corporation to finance through debt because it helps the company to maintain an optimum capital structure.

Question No. 3

The NPV of the project is 7600000

The new price per share is 43.344444 and Stephenson has to issue 1153550.4 shares in order to finance the purchase of land.

Above is the Stephenson Real Estate Balance sheet on the issuance of equity but before the purchase of land.

Above is the balance sheet of Stephenson on the completion of Purchase.

Question No. 4

The market value of the firm can evaluate if the company financed through debt by applying the following equation:

After solving the equation the answer would be 467700000.

Under Armour

Question No 1.

The book value of debt is 867.217 and the value of equity is 9681.854. These values are taken by evaluating the recent financials of the corporations.

Question No 2.

The market value of equity is 9681.854. Through analysis, it can be said that dividend discount model can be applied to this case. Through this model, the future dividend of stock can be evaluated. The cost of equity using CAPM is 0.80%.

Question No. 3.

            The weight of debt is 0.0822 and the cost of debt is 3.98%.

Question No. 4.

 Appendix 

Appendix 2