Below is the question

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For my portion i only need 250 words on the following questions in bold

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 Finance

Scenario: 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.

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