4) MLK, LLC., has sold shoes for over 112 years. The company currently has a debt-equity ratio of [(3+4+5+8+3)/10] and a tax rate of [35+5+8]%. The...
Question

# 4) MLK, LLC., has sold shoes for over 112 years. The company currently

has a debt-equity ratio of [(3+4+5+8+3)/10] and a tax rate of [35+5+8]%. The required return of the firm's levered equity is [8+4+3+5]%. The company is planning an expansion in its production capacity. They will buy an equipment that is expected to generate the following unlevered differential free cash flows:
At Year 0, the initial investment would be -\$[(3 + 1.2 * (5+8)) * 1,000,000];
at Year 1 the FCF would be \$[(4 * (3+3) * 100,000) + 563,875];
at Year 2 the FCF would be \$[((6 * (2+3+5) * 100,000) + 573,584)];
at Year 3 the FCF would be \$[(8 * (2+3+4+5) * 100,000) + 785,461]

The company has arranged a debt issue of \$\$[(6*(1+3+4+5))*70,000] to finance the expansion. Under the loan, the company would pay interest of [3+3]% at the end of each year on the outstanding balance at the beginning of the year. If they take the debt, the company would also make year-end payments of one-third of the debt, completely retiring the issue by the end of the third year.
A. What would be the value of the project if they finance strictly with equity?HINT: You need to compute 𝑅0NOTE: Write the number. Do not answer in millions or in thousands. If your answer is 23,254,267.6849 answer 23254267.6849

B. What would be the value of the project if the company finances with the proposed debt and computes the APV? HINT: The debt is amortized NOTE: Write the number. Do not answer in millions or in thousands. If your answer is 23,254,267.6849 answer 23254267.6849

5) Consider Firm X and Y. The firm had total earnings of \$[(3*100,000) + 200,000] and Shares outstanding of [(4+5+4.5) * 10,000]. Firm X per-share market value is [(4 * 3) * (5 * 2) + 4.5]. Firm X per-share book value is \$[(4 * 1.5) * (5 * 1.75) + 4.5]. Firm Y had total earnings of \$[(4*100,000) + 300,000] and Shares outstanding of [(5+8+3.5) *11,000]. Firm Y per-share market value is \$[(4 * 3.5) * (5 * 4) + 4.5]. Firm Y per-share  book value is \$[(8 * 2.5) * (5 * 2.75) + 3.5].

A. Assume that Firm X acquires Firm Y by issuing long-term debt to purchase all the shares outstanding at a merger premium of \$[(8+4.75)/2]. Assuming that neither firm has any debt before the merger, what would be the total assets for the new company XY. NOTE: Write the number. Do not answer in millions or in thousands. If your answer is 23,254,267.6849 answer 23254267.6849

B.Assume that Firm Y acquires Firm X by issuing long-term debt to purchase all the shares outstanding at a merger premium of \$[(4+4.75)/2]. Assuming that neither the firm has any debt before the merger, what would be the total assets for the new company YX. NOTE: Write the number. Do not answer in millions or in thousands. If your answer is 23,254,267.6849 answer 23254267.6849

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