Capital Restructuring Analysis

CEO Retirement Increase in Agency cost of new management

team Opinion of some analysts that AHP could

maximize their cash holdings through leverage

No change to capital structure

Increase leverage to 30% debt ratio

Increase leverage to 50% debt ratio

Increase leverage to 70% debt ratio

No change to debt ratio: Keep negative tax shield from taxable interest

(111.8M) 30% debt ratio:

Lose negative tax shield and gain 173.9M tax shield Net tax shield = 285.7M

50% debt ratio: Lose negative tax shield and gain 294.2M tax shield Net tax shield = 406.0M

70% debt ratio: Lose negative tax shield and gain 414.6M Net tax shield = 526.4M

Increasing the debt ratio creates a tax shield, increasing the value of the firm the stock price

No change to debt ratio: $30/share

30% debt ratio: $31.80/share

50% debt ratio: $32.60/share

70% debt ratio: $33.40/share

Increasing the debt ratio has potential to affect the bond rating based on the ratio of debt to market value and interest coverage

No change to debt ratio: 0.3%, 415.13, AAA

30% debt ratio: 7.1%, 17.5, AAA/AA

50% debt ratio: 11.0%, 10.5, AAA/AA

70% debt ratio: 14.5%, AA/A

Leverage to 70% debt ratio

Maximizes shareholder value Mitigates risk of increase in Agency Cost Financial risk from increased interest expense offset

by AHP’s inherently risk-averse strategy Potential downgrading in bond rating to AA/A will

still lead to a healthy bond market