The value of firm is equal to value of debt plus value of equity. Assume the firm has 4 million shares outstanding currently selling at $25 per share, and it decides to issue 50 million in debt to repurchase 2 million shares, how would this affect the value before/ after.
Q: a. What is their annual shortfall at retirement assuming inflation of 3 percent per year? Click on…
A: The future value is the predicted value of an investment or amount of money at a given future…
Q: 900 A continuous annuity with withdrawal rate N = $1,- ? year and interest rate r = 4% is funded by…
A: The objective of the question is to determine the time it will take for a continuous annuity to run…
Q: Problem 2-22 Income Statement (LG2-1) Consider a firm with an EBITDA of $1,100,000 and an EBIT of…
A: EBITDA = $1,100,000EBIT = $1,000,000Debt = $4,700,000Interest rate = 8.0%Share outstanding =…
Q: An executive is looking to buy a Bugatti Chiron for $2.9 million. The car dealer can offer…
A: Compound = Monthly = 12Purchase Price of car = pp = $2.9 millionInterest Rate = r = 4.9 / 12 %Time =…
Q: 35. White Sails Inn hired you as a consultant to help estimate its cost of capital. You have What is…
A: NOTE: "Hi There, Thanks for posting the questions. As per our Q&A guidelines, must questions be…
Q: A bank has $400 million in demand deposits and desires a 20 percent reserve ratio. How much will it…
A: Reserve ratio refers to the amount of deposits banks have to keep aside or hold as reserve other…
Q: Last year, Perez Professional Group had annual revenue of $87, 200, depreciation of $11, 600, cost…
A: Annual revenue = $87,200Depreciation = $11,600Cost of goods sold = $54,700,Administrative expenses =…
Q: Which reason(s) below would be a good justification to use a multistage dividend discount model?…
A: The percentage or the value by which the dividend increases compared to its prior value is known as…
Q: 1 years ago, Ronaldo had $141,000.00 in his account. In 5 years, he expects to have $409,000.00. If…
A: TVM refers to the concept that considers the effect of the interest-earning capacity of money, which…
Q: What is the difference between the long and the short positions in a contract for the future…
A: Stock index:An indicator of the worth of a certain segment of the stock market is a stock index. It…
Q: You plan to deposit $5, 706 into a savings account paying 8% interest compounded quarterly. How much…
A: whereFV = Future value = amount at the endPV = Present value = amount deposited today = $5,706i =…
Q: In 1896, the first Green Jacket Golf Championship was held. The winner's prize money was $200. In…
A: >Please follow below explanation for solution
Q: A real estate investment has the following annual cash flows: 1 $45,000 2 $38,000 3 $52,000 4…
A: In Capital Budgeting, Net present value is the measure to evaluate the capital investment in the…
Q: An investor bought a $7,500 bond with a coupon rate of 5.3% compounded semi-annually. At the time of…
A: Bond price is the sum of present value of all coupon payments and present value of face value at…
Q: True or false: In a large corporation, stockholders and managers are usually separate groups.
A: Stockholders, or shareholders, serve as the proprietors of the company, holding a stake in its…
Q: Consider the performance of a stock fund, a bond fund, and Treasury bills. Measurement Mean Standard…
A: The optimal risky portfolio, in the context of portfolio theory and modern portfolio theory (MPT),…
Q: The expected mean of the normal probability distribution of possible returns for XYZ Corporation is…
A: Mean returns: 15%Standard deviation: 2%Confidence interval: 67%
Q: Purchase Cost Annual Operating Cost Scrap Value Economical Life Capital Cost A) 76098 B) 54118 C)…
A: Alternative A
Q: You have been hired as a consultant for Pristine Urban-Tech Zither, Incorporated (PUTZ),…
A: Net Present Value is used to evaluate the investment and financing decisions that involve cash flows…
Q: Which of the following descriptions about commercial paper are true? (Select all that apply.) Check…
A: Commercial papers are promissory notes issued by companies. These are commonly unsecured in nature.
Q: A rotary engine powers a vertical takeoff and landing (VTOL) personal aircraft known as the Moller…
A: Total cost: $105 millionNumber of years: 23Interest rate: 7%
Q: Annual Coupon Coupon Payment Frequency Interest Payment Dates Maturity Date Day Count Convention…
A: Annual Coupon: 5%Coupon Payment Frequency: SemiannualInterest Payment Dates: 30 December and 30…
Q: Year 2011 2012 2013 Forecasted Net Income $20,856 $22,733 $24,552 2014 $27,252 2015 $29,978…
A: Residual income:The money left over from an investment or business after all costs have been paid…
Q: James deposits $266.40 each month into an annuity account for his child's college fund in order to…
A: Interest earned refers to an amount accumulated as earnings over the investment value of the banks…
Q: 1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year,…
A: Bonds are debt instruments issued by companies. The issuing company pays periodic interest or…
Q: B. Begin again. On August 4. the balance on your card is $1000. Now see what
A: Given Data:Initial balance on August 4: $1000Payment made on September 2: $900Interest rate: 24.99%
Q: How much will Larissa have in her savings account 10 years from now, if she deposits the $5817 that…
A: The concept of time value of money will be applied here. As per the concept of time value of money…
Q: Consider the prices of the following three Treasury issues as of February 24, 2021: Maturity Bid…
A: A synthetic non-callable bond is a financial instrument that mimics the cash flows and…
Q: Calculate the pre-tax cost of debt capital. Pre-tax cost of debt capital %
A: The pre-tax cost of debt shows the interest rate that a business pays on its loan before taxes are…
Q: Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal…
A: Mean is the average value of a set of numbers, obtained by summing up all the values and dividing it…
Q: various methods of analysis for capital budgeting
A: Capital budgeting: The investment decision of a business is known as the capital budgeting…
Q: Assume you have a bond with a semi-annual interest payment of $50, a par value of $1 comma 000, and…
A: The current yield of a bond is a measure of the annual income the bond generates in relation to its…
Q: A firm's optimal capital structure is 60% equity. If the firm has $25 million in retained earnings…
A: Retained earnings = $25 millionCapital structure = 60% equityWhen a firm needs to issue additional…
Q: A 7-year project is expected to provide annual sales of $221,000 with costs of $97,500. The…
A: The operating cash flow refers to the measure of the ability of the project to raise cash for the…
Q: Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a 4.0%…
A: The objective of the question is to calculate the probability distribution of the 1-year Holding…
Q: Why did the value of the Indian rupee decline against that of the US dollar after the US Fed had…
A: The foreign exchange market also known as the Forex or FX market, is a gloabal decentralized or over…
Q: 1. Your client Bob has sent you an email asking for help figuring out how long his money will last.…
A: The time value of money is a concept that recognizes the inherent worth of money received or…
Q: a. Many years ago, Castles in the Sand Incorporated issued bonds at face value at a yield to…
A: Yield to maturity is a crucial metric for investors because it provides a standardized measure for…
Q: What if the first par call date is 13 years from now? N = PV = PMT= FV ➜ CPT I/Y = = • The yield to…
A: A yield to call estimates the return an investor would receive in the event that the issuer redeems…
Q: The Dakota Corporation had a 2023 taxable income of $21,000,000 from operations after all operating…
A: The objective of the question is to calculate the income tax liability of Dakota Corporation for the…
Q: The financial account is divided into three subcategories: direct investment, portfolio investment,…
A: The financial account is a crucial component of a country's balance of payments, providing insights…
Q: A $60,000 bond with a coupon rate of 7.00% is redeemable on October 1, 2013. The bond coupons are…
A: Bond price will be the aggregate of present value of all coupon payments and present value of face…
Q: the chief investment officer for a money management firm specializing in taxable individual…
A: Risk tolerance for Ms. A=8Risk tolerance for Mr. B…
Q: Mark for follow up Question 10 of 75. Arthur has a nonrecourse loan financed by his bank. This means…
A: Tax forwards. are a helpful tool for minimizing tax liabilities because they enable individuals and…
Q: ABC Telecom has to choose between two mutually exclusive projects. If it chooses project A, ABC…
A: The objective of the question is to calculate the difference between the net present values (NPV) of…
Q: Use the information below for 2018 for 3M Company to answer the requirements (perform these…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: i. Whether profitable project or non-profit project the time value of money is important…
A: The objective of the question is to understand the importance of the time value of money in project…
Q: a. What is its coupon rate? (Do not round intermediate calculations and enter your answer as a…
A: The coupon rate is the annual interest rate paid on a fixed-income instrument, like a bond. It…
Q: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio…
A: Standard deviation is the measure of risk in the stock and standard deviation is measured as square…
Q: 4 Healthy Valley Medical Center is evaluating two investment 5 projects, each of which requires an…
A: IRR or Internal rate of return is the actual return from the project.NPV or Net Present Value =…
Step by step
Solved in 3 steps with 3 images
- Cliff Corp (CC) has assets of $300 million including $25 million in cash. CC has 1 million share of stock outstanding and $70 million of debt. Assume capital markets are perfect. What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18 million in dividends, then what is the new ex- dividend share price? If instead of paying the dividend CC repurchases $18 million of stock, then what will be the new share price? What is the new debt-to-equity ratio after the payout?Suppose that Papa Bell, Inc.’s equity is currently selling for $50 per share, with 3.5 million shares outstanding. Assume the firm also has 12,000 bonds outstanding, and they are selling at 94 percent of par.What are the firm’s current capital structure weights? Capital Structure Weights Equity % Debt %A. Suppose that Taco John’s equity is currently selling for $55 per share, with 4million shares outstanding. If the firm also has 17 thousand bonds outstanding,which are selling at 94 percent of par, what are the firm’s current capital structure weights? Use the capital structure weights equation:B. Suppose that Taco John’s is considering an active change to their capital structure so as to have a D/E of 0.4, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?
- A. Suppose that Chi Chili’s equity is currently selling for $40 per share, with 2.5 million shares outstanding. If the firm also has 100,000 bonds outstanding, which are selling at 94 percent of par, what are the firm’s current capital structure weights? B. Suppose that Chi Chili’s is considering an active change to their capital structure so as to have a D/E of 0.60 OR 60%, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?Q3) Tanten Company has 200% debt and 80% equity. The borrowing rate is 12%. A. If you own 4% of the stock of Abacus, what is your dollar return if the company has net operating income of $750,000 and the over all capitalization rate , Ko, is 15%? Value of the firm is 500,000 B. What is the implied required rate of return on equity? C. What is the market value of stock and the return of stock? D. What is the market value of debt?Whispering Pines Inc. is all-equity-financed. The expected rate of return on the company's shares is 9.65%. a. What is the opportunity cost of capital for an average-risk Whispering Pines investment? (Enter your answer as a percent rounded to 2 decimal places.) Opportunity cost of capital % b. Suppose the company issues debt, repurchases shares, and moves to a 24% debt-to-value ratio (D/ V = 0.24). What will be the company's weighted-average cost of capital at the new capital structure? The borrowing rate is 5.75% and the tax rate is 21%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighted-average cost of capital
- Given that the firm has a value of $1,196,428.57 when it is all equity, what will be the value of the firm if Ice Cream Sandwich Co. borrows $160,000 of permanent debt and uses the proceeds to buy back stock? Enter your answer rounded to two decimal places.Suppose Summa Industries and Cumma Technology have identical assets that generate identical cash flows. Summa Industries is an all-equity firm, with 12 million shares outstanding that trade for a price of $16.00 per share. Cumma Technology has 18 million shares outstanding, as well as debt of $57.60 million. a. According to MM Proposition I, what is the stock price for Cumma Technology? b. Suppose Cumma Technology stock currently trades for $10.74 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?Kinston Enterprises has a debt obligation of $47 million that is due now. The market value of Kinston's assets is $102 million, and the firm has no other liabilities. Assume that capital markets are perfect and that Kinston has 5 million shares outstanding. If Kinston decides to sell new shares to raise capital to pay its debt obligation, how many shares will be issued? 5.0 million 4.3 million 4.7 million 4.0 million
- Global Pistons (GP) has common stock with a market value of $450 million and debt with a value of $321 million. Investors expect a 15% return on the stock and a 5% return on the debt. Assume perfect capital markets. a. Suppose GP issues $321 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? b. Suppose instead GP issues $48.94 million of new debt to repurchase stock. i. If the risk of the debt does not change, what is the expected return of the stock after this transaction? ii. If the risk of the debt increases, would the expected return of the stock be higher or lower than when debt is issued to repurchase stock in part (i)? a. Suppose GP issues $321 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? If GP issues $321 million of new stock to buy back the debt, the expected return is _______________ (Round to two decimal places.)A firm has 7,000 outstanding shares with current value of 10£ per share. Planned dividend is £5 per share. What is the ex-dividend share price? How much is the share price if the company decides to use the cash it had originally earmarked for dividend for a share repurchase instead? A. £5, £10 B. £10, £5 C. £8, £10 D. £2, £12 ( explain well with step by step answer ).Q.An all-equity company is considering borrowing $10,000,000 and using the borrowed funds to repurchase shares. The company's cost of equity is 9%. EBIT is expected to be $3,600,000 every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. If the company proceeds with the capital restructing, what will be the value of the company according to M&M Proposition I without taxes?