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.
Do you need help with this assignment or any other? We got you! Place your order and leave the rest to our experts.