M and M pizza case
User Generated
onvyrl1905
Business Finance
Description
Moe Miller is the new managing director of M&M Pizza. He is considering a change in the company's current capital structure to reduce the cost of capital. With the cost of debt at 4% and the cost of equity at 8%, adding a cheaper cost of funds through debt appears to be obvious. The case provides a simple framework for understanding the powerful intuition behind Modigliani and Miller.
Write a paper using the following guidelines (12 PT Times Roman font, 1 inch margins, single space within paragraphs and double spaced between paragraphs).
INTRODUCTION: Summarize the case in your own words.
Financial Statement Analysis: How do the financial statements for M&M Pizza vary with the proposed repurchase plan? Do the alternative policies improve the expected dividends per share?
Weighted Average Cost of Capital: What impact does the repurchase plan have on M&M's weighted average cost of capital?
Debt and Equity Evaluation: What are the debt and equity claims worth under the alternative scenarios?
Which proposal is best for investors? What do you recommend that Miller do?
Conclusion: How would your recommendations change if the new tax law is implemented? Please note that, with corporate taxes, the expected debt-to-equity ratio under the share repurchase plan is 0.588 and the number of remaining shares outstanding is 39.4 million.
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