FINA 2222 : Corporate Financial Policy - Rakuten’s - Corporate Financial Policy Assignment Help

Internal Code: 1JGCE

Corporate Financial Policy Assignment Help

TASK To evaluate Rakuten’s credit rating, Airi would need to analyze Rakuten’s financial ratios according to the guide provided by a credit rating agency in Japan, called Rating and Investment Information, Inc. (R&I). Financial ratio computation methods are also provided in Exhibit 5. Balance sheet, income statements and cash flow statements are in Exhibits 2 and 3 respectively. Assume that Rakuten could borrow 100 billion yen. The most straightforward value from the leveraged recapitalization that Airi would estimate is the present value of interest tax shield. Assuming Airi is correct about Rakuten’s ability to issue A- rated bonds, the cost of debt is 0.298% (5 years to maturity). Corporate tax rate in Japan is currently 30.89%. Airi would have to explain to Rakuten management how leveraged recapitalization could affect shareholders’ risk and shareholders’ required rate of return. Therefore, she would need to estimate Rakuten’s equity beta and equity cost of capital pre- and post-leveraged recapitalization. The next step is determine how firm value can be maximized due to a change in cost of capital. Airi would need to estimate Rakuten’s WACC pre- and post-leveraged recapitalization (with tax). Assume the cost of debt with 5 years to maturity is 0.298%. Prepare a market value balance sheet in Rakuten’s leverage recapitalization using the template in Exhibit 8 (assume tax and no arbitrage pricing). In less than 100 words, discuss the implications of the leveraged recapitalization for the two groups of existing shareholders: (i) those who sell their shares back to the firm, (ii) those who hold on to their shares. Airi believes that an EBIT/EPS analysis following the template in Exhibit 7 would provide insights regarding the effects of the leveraged recapitalization on expected EPS, taking into account projections of future EBIT. In less than 300 words, discuss two types of costs & two types of benefits (excluding tax shield and EPS) that would potentially arise from the proposed leveraged recapitalization for Rakuten