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1.     Suppose that Lil John Industries’ equity is currently selling for $41 per share and that 2.4 million shares are outstanding. Assume the firm also has 34,000 bonds outstanding, and they are selling at 102 percent of par.

  

What are the firm’s current capital structure weights? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  

  

Capital structure weights

  Equity

 

[removed] %

 

  Debt

 

[removed] %

 

2.           Suppose a firm has had the following historic sales figures.

 

 

Year:

 

2009

 

 

2010

 

 

2011

 

 

2012

 

 

2013

 

  Sales

$

3,100,000

 

$

3,350,000

 

$

3,000,000

 

$

3,600,000

 

$

3,200,000

 

   

    What would be the forecast for next year’s sales using the naïve approach?

 

 

  Next year’s sales

$ [removed]  

 

3.         Suppose that Papa Bell, Inc.’s, equity is currently selling for $25 per share, with 2.0 million shares outstanding. The firm also has 9,000 bonds outstanding, which are selling at 93 percent of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E of 0.5.

Which type of security (stocks or bonds) would the firm need to sell to accomplish this?

Sell bonds and buy back stock ?

Sell stock and buy back bonds ?

 

How much would it have to sell? (Enter your answer in dollars not in millions. Do not round intermediate calculations and round your final answer to 2 decimal places.)

  Selling amount$ [removed]  

 

4.       Suppose a firm has had the following historic sales figures.

 

 

Year:

 

2009

 

 

2010

 

 

2011

 

 

2012

 

 

2013

 

  Sales

$

3,000,000

 

$

4,250,000

 

$

2,900,000

 

$

2,500,000

 

$

3,100,000

 

  

What would be the forecast for next year’s sales using the naïve approach?

 

 

  Next year’s sales

$ [removed]  

 

 

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