king Inc. is expected to generate EBIT of $5 million annually in perpetuity (starting in one year). LALAMOVE is all equity financed and shareholders require a return of 11%. The corporate tax rate is 35%. LALAMOVE is proposing to issue $5 million of perpetual bonds with an annual coupon of 6%. The company uses the $5M of debt to repurchase stock at $15.65 per share. Assume that, after borrowing the $5M, LALAMOVE never increases or decreases its debts. What is the share

king Inc. is expected to generate EBIT of $5 million annually in perpetuity (starting in one year). LALAMOVE is all equity financed and shareholders require a return of 11%. The corporate tax rate is 35%. LALAMOVE is proposing to issue $5 million of perpetual bonds with an annual coupon of 6%. The company uses the $5M of debt to repurchase stock at $15.65 per share. Assume that, after borrowing the $5M, LALAMOVE never increases or decreases its debts. What is the share

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $300,000 of debt at an interest rate of 12% and use the proceeds to repurchase 30,000 shares at $10 per share. Profits before interest are expected to be $130,000. What is the ratio of price to expected earnings for River Cruises before it borrows the $300,000? What is the ratio after it borrow?
Kelly Corporation is considering the issuance of either debt or preferred stock to finance the purchase of a facility costing P1.5 million. The interest rate on the debt is 16 percent. Preferred stock has a dividend rate of 12 percent. The tax rate is 46 percent. REQUIREMENTS: 1. What is the annual interest payment? 2. What is the annual dividend payment? 3. What is the required income before interest and taxes to satisfy the dividend requirement??
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm's debt-equity is expected to rise from 35 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The pretax cost of debt is 6.4 percent. The firm expects to have an aftertax earnings of $940,000 per year in perpetuity. The corporate tax rate is 21 percent. a. What is the expected return on the equity before the repurchase agreement? b. What is the return on assets for the firm? (Hint: use the MM Proposition ll with Tax.) c. What is the expected return on the firm's equity after the repurchase announcement? d. What is the weighted-average cost of capital for the company after the repurchase announcement?.
A firm currently is an all-equity firm with a market value of $30,000,000. The firm is contemplating selling $15,000,000 in bonds and using the proceeds to repurchase equity. The bonds promise an 8% interest payment at the end of each year. The bonds are structured so that the firm will pay exactly $5,000,000 of the principal back at the end of each of the second year, fourth year, and sixth year, and thus the bonds will be fully retired at the end of the sixth year. The corporate tax rate is 40% and there are no personal taxes. What will the market value of the firm be the moment after this deal is announced?
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Dubai Corporation manufactures construction equipment. It is currently at its target debt– equity ratio of .70. It’s considering building a new $45 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $6.2 million a year in perpetuity. The company raises all equity from outside financing. There are three financing options: A new issue of common stock: The flotation costs of the new common stock would be 8 percent of the amount raised. The required return on the company’s new equity is 14 percent. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 8 percent, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio…
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The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par value bonds at a new price of $939. The bonds would mature in 15 years, and the coupon interest rate is 9.5%. Compute the after-tax cost of capital to Maximus for bonds, assuming a 34% tax rate. Show work please
Arizona Seafood, Inc., plans $45 million in new borrowing to repurchase 3,600,000 shares at their market price of $12.50. The yield on the new debt will be 12%. The company has 36 million shares outstanding and EPS of $0.60 before the repurchase. The company's tax rate is 40%. The company's EPS after the share repurchase will be closest to: Show calculations
XYZ Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
The GiN Corp. is expected to pay a dividend of $3 which is expected to grow at 2% for a foreseeable futuré. The stock of the GiN Corp. is currently selling at a market price of $40. The company recently expanded its operations by issuing 10-year Corporate bond at par value ($1,000) which pays an annual coupon payment of $80. If the debt-equity ratio of the company is 0.40 and the corporate tax rate is 30%, what is the weighted average cost of capital of the company? Calculate the weighted average cost of capital. (A) The weighted average cost of capital is 9.50% (B) The weighted average cost of capital is 8.39% (C) The weighted average cost of capital is 8.00% (D) The weighted average cost of capital is 5.60% Answer Activate Windows Go to Settings to activate Windows C Type here to search ENG 00:18 4の IN 02-11-2020 A B 00
The GiN Corp. is expected to pay a dividend of $3 which is expected to grow at 2% for a foreseeable future. The stock of the GİN Corp. is currently selling at a market price of $40. The company recently expanded its operations by issuing 10-year Corporate bond at par value ($1,000) which pays an annual coupon payment of $80. If the debt-equity ratio of the company is 0.40 and the corporate tax rate is 30%, what is the weighted average cost of capital of the company? Calculate the weighted average cost of capital. (A) The weighted average cost of capital is 9.50% (B) The weighted average cost of capital is 8.39% (C) The weighted average cost of capital is 8.00% (D) The weighted average cost of capital is 5.60%