Q1: Mini case on capital structure and valuation Tri-globe Co is a large company and its shares being listed and officially traded on a major stock exchange. Tri-lobe Co is an all-equity company that has made previous investments which are sufficient, in total to generate an annual EBIT of 78 every year. However, in recent years, the performance of Tri-globe has been criticized by financial media for weak and poor performance as compared to previous performance. This implies that this cash flow is not certain. Tri-globe plant consider evaluating a firm with similar EBIT to evaluate including debt in its capital structure Details of EBIT,debt, interest rate, risk free rate, market risk Premium and marginal tax rate are as follows: Base scenario: all- equity 78m Base scenario: quity with dcbt of 385m 78m EBIT Interest at 6 EBT Tax 25.8% Earnings Required: (a) Estimate the change in camings in Base scenario I? (1.3Marks) (b) Consider the effect of 10% decrease in the expected EBIT.ro-estimate the change in carnings in socnario I (1.Marks) Scenario II All-equity Scenario Il equity with debe of S25 EBIT Interest at 6% EBT Tax at 25.8% Earnings Change in camings () Based on your calculation in a and above, discuss the effects and implications of debt financing on cquity cash flow variability (2Marks) ( Using Base scenario make your own assumption on cost of equity-fall-wit fim and estimate the enterprise value for both unlevered and levered firms. (Marie) (c) Estimate the cost of equity and weighted average cost of capital (WACC for levered firm. (3Marks) () Provide an intuitive explanation for the results and State clearly any limitations and assumptions that you made in your calculations? (4Marks)

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