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1. Explain the data in Table 2.

Using this information, what is Fuzzy Tronics optimal capital structure, and what is the firms current weighted average cost of capital? 2. Given the information in Table 1, what is the total dividend expense that Fuzzy Tronic will face in 1997, 1998, 1999, and 2000? 3. The case reports that in 1996, Fuzzy Tronic operated with an optimal capital structure. If the firm desires to maintain this particular capital structure over the 1997 2000 period, is it possible to give shareholders the projected dividend payments you indentified in Question 2? Why or why not? 4. Dividend payments represent a cash expense that Fuzzy Tronic must pay in each year of the 1997 2000 periods. Based on an examination of the projected financial statement data shown in Table 2, how is the firm financing this expense? Do you think that this financing method is appropriate? Why or why not? 5. Give the information shown in Table 3, what is the optimal capital budget at Fuzzy Tronic for 1997? 6. Given the current projects concerning Fuzzy Tronics dividend payments and financial condition over 1997 2000 period, what is the market value of the firms common stock? What is fuzzy Tronics market to book ratio and price earning ratio? Based on your answers to these questions, how does the market assess the quality of Fuzzy Tronics earning and growth prospect? 7. In considering the transmission software project, suppose David Myers uses the residual dividend model to establish Fuzzy Tronics 1997 payment, and then continues to use the projected financial statement data shown in Table 1 and 2 to establish the firms projected financial condition. Give these assumption, (a) what dividend payment can Fuzzy Tronic offer its shareholders in 1997; and (b) how is the firms stock price likely to change as a result of this modification in the firms planned 1997 dividend payment? 8. Review your answer to Question 7. Is this any reason to suspect that this answer does not accurately reflect the change in (a) the 1997 dividend payment that Fuzzy Tronic will offer its shareholders, and (b) the firms stock price if it accepts the transmission software project? In particular, what aspect of your application of the residual dividend model is flawed in Question 7? How should you change the assumptions used in this question? 9. Revise the pro forma financial statements shown in Table 1 and 2 to reflect the impact of the transmission software project on Fuzzy Tronics overall financial condition. In developing these revised financial statements, what important details about the project do you need to gather from the case? 10. Compare the pro forma balance sheet you developed to answer Question 9 with the pro forma statement shown in Table 2, and pay particular attention to the projected capital structure changes at Fuzzy Tronic in each year of forecast. What is different about these two forecasts? In particular, why does the equity ratio deteriorate over the 1997 2000 forecast period in Table 2, while it remains stable in your revised forecast? 11. Based on the revised pro forma financial statements you developed in Question 9, should fuzzy Tronic accept or reject the Transmission software project? Assume that the firm use the residual dividend model to establish its 1997 dividend payment and identify (a) the specific benefits that this project offers the firms and (b) the drawbacks that Fuzzy Tronic faces in accepting the project.