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. Assignment Steps Resources: Corporate FinanceScenario: Hightower, Inc. plans to announce it will issue $2.0 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5%. Hightower, Inc. is currently an all-equity company worth $7.5 million with 400,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The company currently generates annual pretax earnings of $1.5 million. This level of earnings is expected to remain constant in perpetuity. The tax rate is 35%. Prepare a 1,050-word memo advising the management of Hightower, Inc. on the financial impact, including the following: 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. Show all calculations and submit with your memo. Format your paper consistent with APA guidelines. Click the Assignment Files tab to submit your assignment.

Instructions Waterways (Chapter 19)  Waterways Corporation is a private corporation formed for the purpose of providing the products and the services needed to irrigate farms, parks, commercial projects, and private lawns. It has a centrally located factory in a U.S. city that manufactures the products it markets to retail outlets across the nation. It also maintains a division that performs installation and warranty servicing in six metropolitan areas. The mission of Waterways is to manufacture quality parts that can be used for effective irrigation projects that also conserve water. By that effort, the company hopes to satisfy its customers, perform rapid and responsible service, and serve the community and the employees who represent them in each community. The company has been growing rapidly, so management is considering new ideas to help the company continue its growth and maintain the high quality of its products. Waterways was founded by Will Winkman, who is the company president and chief executive officer (CEO). Working with him from the company’s inception is Will’s brother, Ben, whose sprinkler designs and ideas about the installation of proper systems have been a major basis of the company’s success. Ben is the vice president who oversees all aspects of design and production in the company. The factory itself is managed by Todd Senter, who hires his line managers to supervise the factory employees. The factory makes all of the parts for the irrigation systems. The purchasing department is managed by Helen Hines. The installation and training division is overseen by vice president, Henry Writer, who supervises the managers of the six local installation operations. Each of these local managers hires his or her own local service people. These service employees are trained by the home office under Henry Writer’s direction because of the uniqueness of the company’s products. There is a small human resources department under the direction of Sally Fenton, a vice president who handles the employee paperwork, though hiring is actually performed by the separate departments. Teresa Totter is the vice president who heads the sales and marketing area; she oversees 10 well-trained salespeople. The accounting and finance division of the company is headed by Ann Headman, who is the chief financial officer (CFO) and a company vice president; she is a member of the Institute of Management Accountants and holds a certificate in management accounting. She has a small staff of accountants, including a controller and a treasurer, and a staff of accounting input operators who maintain the financial records. A partial list of Waterways’ accounts and their balances for the month of November is itemized below. Accounts Receivable$275,000Advertising Expenses54,000Cash260,000Depreciation – Factory Equipment16,800Depreciation – Office Equipment2,400Direct Labor42,000Factory Supplies Used16,800Factory Utilities10,200Finished Goods Inventory, November 3068,800Finished Goods Inventory, October 3172,550Indirect Labor48,000Office Supplies Expense1,600Other Administrative Expenses72,000Prepaid Expenses41,250Raw Materials Inventory, November 3052,700Raw Materials Inventory, October 3138,000Raw Materials Purchases184,500Rent – Factory Equipment47,000Repairs - Factory Equipment4,500Salaries325,000Sales Revenue1,350,000Sales Commissions40,500Work in Process Inventory, October 3152,700Work in Process Inventory, November 3042,000 Instructions: Based on the information given, construct an organizational chart of the Waterways Corporation. You may create the organizational chart in Microsoft Word or Excel. A list of accounts and their values are given above. From this information, prepare a cost of goods manufactured schedule, an income statement, and a partial balance sheet for the month of November, which should be created using Excel. If you elect to create your organizational chart in a Word document, then you will need to submit both a Word document (containing the organizational chart) and an Excel document (containing the cost of goods manufactured schedule, income statement, and partial balance sheet). If you elect to create your organizational chart in Excel, you will only submit an Excel document, which would contain all components of the assignment.