Monroe Inc is an all-equity firm with 1,000,000 shares outsta company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (D ng $10,000,000 of Boo% boods and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk prem beta is currently L. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/rs because EPS = DPS.) # 563.23 O & $36.31 OCHES Od $30.55 $25.66
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- WorldTrans is an all-equity firm with 500,000 shares outstanding. It has $2,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 25%. The company is considering issuing $3,000,000 of 9.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 4.5%, the market risk premium is 5.0%, and the firm's beta is currently 1.05. However, the CFO believes the beta would rise to 1.25 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: P0= EPS/rs because EPS = DPS.) Group of answer choices $35.43 $33.20 $29.99 $31.92 $26.81Ayna Inc. is an all-equity firm with 400,000 shares outstanding. It has P3,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS), and its tax rate is 25%. The company is considering issuing P5,000,000 of 12.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 4.5%, the market risk premium is 5.0%, and the firm's beta is currently 0.90. However, the CFO believes the beta would rise to 1.10 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Round final answer to the nearest centavo or two decimal places) (Hint: P0 = EPS/rs because EPS = DPS; Repurchased stocks = Bonds/Stock price)Monroe Inc. is an all-equity firm with 500,000 shares outstanding. It has RM2,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS), and its tax rate is 40%. The company is considering issuing RM5,000,000 of 9.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 4.5%, the market risk premium is 5.0%, and the firm's beta is currently 0.90. However, the CFO believes the beta would rise to 1.10 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: P0 = EPS/rs because EPS = DPS.)
- 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?.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?the kosol co. can raise $200,000 by (1) selling 1,000 shares of common stock at $200 each or (2) selling new bonds that will net the firm $200,000 and carry an interest rate of 9 percent. Currently, the firm has $200,000 of debt at 7% and 2,000 common stock outstanding. If the firm's tax rate is 25 percent, what is the indifferent EBIT (EBIT*)?
- A company just issued $140000 of perpetual 9% debt and used the proceeds to repurchase stock. The company expects to generate 121000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 10% and the tax rate is 40%. Use FTE to calculate the value of the company's equity. Your Answer: AnswerTarbox Tobacco Inc. is all equity financed and generates perpetual annual EBIT of $300. 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 Tarbox has a 100% payout rate. Tarbox has 1, 500 shares outstanding. The stock holders of Tarbox require a return of 5%. Assume that the tax rate is 0%. What is the price per share for Tarbox stock? (Round to the nearest whole number.)Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…
- A company just issued $225000 of perpetual 6% debt and used the proceeds to repurchase stock. The company expects to generate 109000 of EBIT in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm's unlevered cost of capital is 15% and the tax rate is 25%. Use FTE to calculate the value of the company's equity.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: (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?Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…