VanMannen Foundations, Inc ​
-Refer to the Data for VanMannen Foundations, Inc

question 6

Short Answer

VanMannen Foundations, Inc.(VF)
VanMannen Foundations, Inc.(VF) is a zero-growth company that currently has zero debt, and it has the data shown below.
$\begin{array}{lr}\text { EBIT }= & \$ 80,000 \\\text { Growth }= & 0 \% \\\text { Orig cost of equity, } r_{s}= & 10.0 \%\\\text { No. of shares }= & 10,000 \\\text { Price per share }= & \$ 60.00 \\\text { Tax rate }= & 25 \%\end{array}$ ​
-Refer to the data for VanMannen Foundations, Inc.(VF).Now the company is considering using some debt, moving to the market value capital structure indicated below.The money raised would be used to repurchase stock.It is estimated that the increase in risk resulting from the additional leverage would cause the required rate of return on equity to rise somewhat, as indicated below.If this plan were carried out, what would be VF's new WACC and its new value of operations? ?
? $\begin{array} { l l } \text { New interest rate } = \mathrm { r } _ { \mathrm { d } } = & 6.00 \% \\ \text { New cost of equity } = \mathrm { r } _ { \mathrm { s } } = & 10.75 \% \\ \text { New Debt } / \text { Value } = \mathrm { w } _ { \mathrm { d } } = & 20 \% \\ \text { New Equity } / \text { Value } = \mathrm { w } _ { \mathrm { s } } = & 80 \% \end{array}$

$\underline{ \text { WACC } } \quad \underline { \text { Value } }$
a. $9.50 \% \quad\$ 631,579$
b. $9.80 \% \quad \$ 644,211$
c. $10.10 \% \quad \$ 657,095$
d. $10.40 \% \quad \$ 670,237$
e. $10.70 \% \quad \$ 683,641$

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Definitions:

Dominant Gene

A gene that expresses its phenotype over another gene, the recessive gene, when they are both present in a pair of alleles.

Recessive Gene

A gene that produces its characteristic phenotype only when its allele is identical, otherwise being masked by the effects of a dominant gene.

Temperament

An individual's innate disposition or behavioral style and characteristic emotional response.

Chess and Thomas

Researchers known for their work on temperament, particularly identifying three basic types of temperament in infants: easy, difficult, and slow-to-warm-up.