Company S has 4,000 shares outstanding and a total stockholders’ equity of $200,000. It is about to issue 6,000 new shares to the prospective parent company. The shares will be sold for a total of $650,000. Will there be an excess of cost over book value? If so, how will it likely be accounted for?
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Company S has 4,000 shares outstanding and a total
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- Gamma Industries has net income of $300,000, and it has 1,875,000 shares of common stock outstanding. The company's stock currently trades at $42 a share. Gamma is considering a plan in which it will use available cash to repurchase 10% of its shares in the open market at the current $42 stock price. The repurchase is expected to have no effect on net income or the company's P/E ratio. What will be its stock price following the stock repurchase? Do not round intermediate calculations. Round your answer to the nearest cent. $Raybac is about to go public. It's present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?
- David's Watersports Firm is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company will receive $15.40 per share and will incur $180,000 in registration, accounting, and printing fees. A. What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value (at retail)? B. If the firm wanted to net $15.99 million from this issue, how many shares must be sold?The stock price of Wards Company is currently $35. Wards need to raise $25 million by issuing common stock. Underwriters have informed Wards’ management that it must price the new issue to the public at $40 per share to ensure that all shares will be sold. The underwriters’ compensation will be 8 percent of the issue price, so Wards will net $36.80 per share. The company will also incur expenses in the amount of $392,000. How many shares must Wards sell to net $25 million after underwriting and flotation expenses? Provide the quantitative reasoning/calculations you used to solve this question.Barry's Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?
- Bargain Goods Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?Savvies Ltd .is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information, answer the following questions All computations must be done and shown in detail : a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think of borrowing more) b) What is the level of EBIT at which shareholders will be indifferent between the two capital structures, the one with a D/E = 0.5/1 and the other with a D/E of 1?
- Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company?A company is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?Mvela Ltd has 100 000 shares in issue. The shares are currently trading at R100 per share. Mvela needs a new factory. The factory is expected to cost R900 000. The management decided to finance the construction of the new factory using a rights issue at R 90 per share. Required: Explain how this decision will affect the company’s share price; Support your answer with calculations where possible.