value is $1.7 million. The company has net income ring a project which requires the purchase of $372,0 the project is $10,000. Equity shares will be issued Given the above information, which of the followi is no book value dilution after the equity issuance is no market value dilution after the equity issuanc e is book value dilution after the equity issuance
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- b) On January 1, 2014, Dolan Corporation had 60,000 ordinary shares with a RM1 par value issued and outstanding. During the year, the following transactions occurred: Mar 1 Issued 20,000 ordinary shares for RM400,000. June 1 Declared a cash dividend of RM2 per share to shareholders of record on June 15. June 30 Paid the RM2 cash dividend. Dec 1 Purchased 4,000 ordinary shares for the treasury for RM22 per share. Dec 15 Declared a cash dividend on outstanding shares of RM2.25 per share to shareholders of record on December 31. Required Prepare journal entries to record the above transactions.IMB has 1 million outstanding shares, currently trading at $10 each, and it is all-equity financed. Current earnings are $2 million, which also provide the company’s current cash holdings. At the next board meeting, the directors will be discussing whether to implement a new investment project, not yet known to the public. The project costs $1 million and it will generate expected earnings of $.5 million a year, in perpetuity starting one year from now. The appropriate discount rate for the project is 10%. If the project is not undertaken, the firm will pay a dividend of $2 a share. If the project is implemented, the firm must decide how to finance it. The board is considering two options: i) to finance the investment project by retaining earnings and paying only $1 dividend per share; ii) to keep the dividend at $2 per share, and to finance the project by issuing new equity. Shares are issued ex-dividend. Capital markets are perfect (no taxes).Camtek currently has assets of $25,000,000. Given the significant growth of the company's activities, this asset should reach $33,000,000 within a year if Camtek succeeds in obtaining the necessary financing. Currently, the company's capital structure is as follows (book values): Long-term debt $10,000,000 Preferred shares (150,000 shares) $5,000,000 Common shares $8,000,000 Profits not distributed $2,000,000 This capital structure (proportions of each source of financing) is considered optimal; the company does not foresee any significant change to this structure for the next few years. A dividend of $2 per share has just been paid to common shareholders of the company. This dividend was $2.50 7 years ago. Camtek common stock was split 2 for 1 2 years ago. It is estimated that for the next few years (until infinity) the growth of the ordinary dividend and earnings per share will be the same as the average of that of the last 7 years. Currently,…
- The board of directors of Blossom Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,500,000, 8%, 20-year bonds at face value. Plan #2 would require the issuance of 200,000 shares of $5 par value common stock that is selling for $25 per share on the open market. Blossom Corporation currently has 120,000 shares of common stock outstanding and the income tax rate is expected to be 30%. Assume that income before interest and income taxes is expected to be $800,000 if the new factory equipment is purchased.Prepare a schedule that shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (If answer is zero please enter 0, do not leave any fields blank. Round earnings per share to 2 decimal places, e.g. 5.25.) Plan #1Issue Bonds Plan #2Issue Stock select an option…The management of LTTP Corp. is preparing for issuing equity to fund a new project. Rights offeris used. The company has determined that the ex-rights price would be $53. The current price is $58per share, and there are 10 million shares outstanding. The rights offer would raise a total of $45million. What is the subscription price?Perfect World Corp. is unlevered and is valued at $640,000. The company is currently deciding whether including debt in its capital structure would increase its firm value. The current cost of equity is 12%.One of its CFO's proposals is to issue $300,000 in new debt with an 8% interest rate. Perfect World would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding, and effective marginal tax bracket is zero.1) What will be Perfect World Corp's new WACC? 2) What will be new firm value under the proposed capital structure? 3) So far, we have considered a situation in which taxes do not exist. From this "perfect world," we now add complexity to understand what is relevant to the capital structure decision. Assume that Perfect World Corp. is subject to an effective marginal tax bracket of 34%. What will be the company's new cost of equity? What will be the company's new WACC? 4) Is there any target amount of leverage for Perfect…
- 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?JL Enterprises has 90,000 shares of stock outstanding with a book value of $1,343,000 and a market value of $1,560,000. The firm is considering a project that requires the purchase of $189,000 of fixed assets and has a net present value of $7,500. The project would be all-equity financed through the sale of shares. What will the new book value per share be after the project is implemented?Disturbed Corporation needs to raise $59 million to fund a new project. The company will sell shares at a price of $24.10 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. The direct flotation costs associated with the issue are $825,000 and the indirect costs are $485,000. How many shares need to be sold?
- The board of directors of Wildhorse Corporation is considering two plans for financing the purchase of new plant equipment. Plan #1 would require the issuance of $5,200,000, 8%, 20-year bonds at face value. Plan #2 would require the issuance of 100,000 shares of $5 par value common stock which is selling for $52 per share on the open market. Wildhorse Corporation currently has 100,000 shares of common stock outstanding and the income tax rate is expected to be 40%. Assume that income before interest and income taxes is expected to be $651,000 if the new factory equipment is purchased. Prepare a schedule which shows the expected net income after taxes and the earnings per share on common stock under each of the plans that the board of directors is considering. (Do not leave any answer field blank. Enter O for amounts. Round earnings per share to 2 decimal places, e.g. 5.25.) Plan #1 Issue Bonds Plan #2 Issue Stock $ $Moby Inc. is considering two alternatives to finance its construction of a new $2 million plant. (a) Issuance of 200,000 shares of common stock at the market price of $10 per share. (b) Issuance of $2 million, 8% bonds at face value.Quantum Tech Corp. is currently selling at $25 per share. There are 4 million shares outstanding. The company is planning to raise $8 million to finance a new project. Assuming 100% exercise of rights, what are the (1) ex-rights stock price, (2) the value of a right, and (3) the appropriate subscription prices under the following scenarios? a. Two shares of outstanding stock are entitled to purchase one additional share of the new issue. b. Four shares of outstanding stock are entitled to purchase one additional share of the new issue. c. In scenario b, how far could the stock price fall before shareholders would be unwilling to exercise their rights?
