Effect of debt issuance on stock valuation

Effect of Debt Issuance on Stock Valuation Grading Guide

FIN571 Version 9

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Effect of Debt Issuance on Stock Valuation Grading Guide

FIN/571 Version 9

Foundations of Corporate Finance

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Learning Team Assignment: Effect of Debt Issuance on Stock Valuation
Purpose of Assignment
The purpose of this assignment is to demonstrate to students how the issuance of debt to purchase outstanding common stock could affect the value of the company’s equity and redefine the capital structure. The problem will also allow students to explore the effect of corporate taxes through debt financing.
Resources Required
Corporate Finance

Grading Guide
Content

Met

Partially Met

Not Met

Comments:

Prepared a 1,050-word memo advising the management of Hightower, Inc. on the financial impact of the provided scenario.

Used the following questions to prepare the memo:

· What is the expected return on the company’s equity before the announcement of the debt issue?

· Construct the company’s market value balance sheet before the announcement of the debt issue. What is the price per share of the firm’s equity?

· Construct the company’s market value balance sheet immediately after the announcement of the debt issue.

· What is the company’s stock price per share immediately after the repurchase announcement?

· How many shares will the company repurchase as a result of the debt issue? How many shares of common stock will remain after the repurchase?

· What is the required return on the company’s equity after the restructuring?

· Discuss the advantages and disadvantages of debt financing over equity financing.

Showed all calculations.

Formatted your paper consistent with APA guidelines.

Total Available

Total Earned

5

#/5

Writing Guidelines

Met

Partially Met

Not Met

Comments:

The paper—including tables and graphs, headings, title page, and reference page—is consistent with APA formatting guidelines and meets course-level requirements.

Intellectual property is recognized with in-text citations and a reference page.

Paragraph and sentence transitions are present, logical, and maintain the flow throughout the paper.

Sentences are complete, clear, and concise.

Rules of grammar and usage are followed including spelling and punctuation.

Total Available

Total Earned

2

#/2

Assignment Total

#

7

#/7

Additional comments: