Olmsted Inc. has $40 million in excess cash and no debt. The firm expects to generate additional free cash flows of $32 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Olmsted's unlevered cost of capital is 10% and there are 8 million shares outstanding. Olmsted's board is meeting to decide whether to pay out its $40 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Including its cash, and enterprise value, Olmsted's total market value is closest to ________. Group of answer choices $432.00 million $360.00 million $288.00 million $720.00 million
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Olmsted Inc. has $40 million in excess cash and no debt. The firm expects to generate additional
Including its cash, and enterprise value, Olmsted's total market value is closest to ________.
Group of answer choices
$432.00 million
$360.00 million
$288.00 million
$720.00 million
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- Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 11% and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend. Omicron's cum - dividend price is closest to: A. $ 50 B. $83 C. $ 41 D.$33Omicron Technologies has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Omicron's unlevered cost of capital is 11 % and there are 10 million shares outstanding. Omicron's board is meeting to decide whether to pay out its $50 million in excess cash as a special dividend or to use it to repurchase shares of the firm's stock. Assume that Omicron uses the entire $50 million in excess cash to pay a special dividend. Omicron's cum - dividend price is closest to: Question content area bottom Part 1 A.$ 50 B.$ 83 C .$41 D.$ 33Natsam Corporation has $25 million of excess cash. The firm has no debt and 20 million shares outstanding. The operating assets are expected to generate free cash flows of 18 million per year starting from next year till infinity. Its asset cost of capital is 10%. Natsam's board has decided to pay out all this cash as a one-time dividend three days later. (a) What is the current stock price (i.e., the cum-dividend price)? (b) What is the ex-dividend price in a perfect capital market? (c) If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? (d) In a perfect capital market, which policy do investors in the firm prefer?
- Company B's board is meeting to decide how to pay out $20 million in excess cash to shareholders. The company has 10 million shares outstanding, no debt, faces an equity cost of capital = WACC = 12%, and expects to generate future free cash flows of $48 million per year forever that will be paid out to shareholders as dividends each period. Calculate each shareholders' wealth if the company decides to pay out the $20 million excess cash immediately by repurchasing stock. ( Hint: shareholder wealth = value of equity holding plus cash from repurchase.)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…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…
- Shadow, Inc., 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 $4.5 million worth of debt outstanding. The cost of this debt is 8 percent per year. Shadow expects to have an EBIT of $1.8 million per year in perpetuity. Shadow pays no taxes. (1) What is the expected return on the equity of an otherwise identical all-equity firm? (2) What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?Shadow, Inc., 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 $4.5 million worth of debt outstanding. The cost of this debt is 8 percent per year. Shadow expects to have an EBIT of $1.8 million per year in perpetuity. Shadow pays no taxes. (1) What is the market value of Shadow, Inc. before and after the repurchase announcement? (2) What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?Xanadu Corp. is a firm expecting $32 million in net income this year, all of which it plans on distributing to its 400,000 shares outstanding. The company owns $8 million in total assets, but $1 million of that is excess cash. The firm is considering two strategies to disburse the exces cash. The first is to disburse it all to the shareholders as an extra dividend. The second is to execute a stock buyback. If an investor holds 1000 shares before any buyback, what will the capital gains (gain from stock sale) and income (dividend) cash flows be under each strategy?
- 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).Finch, Incorporated, is debating whether to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 11,000 shares outstanding, and the price per share is $58. EBIT is expected to remain at $24,200 per year forever. The interest rate on new debt is 7.5 percent, and there are no taxes. a. Allison, a shareholder of the firm, owns 200 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 200 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your…Finch, Incorporated, is debating whether to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 11,000 shares outstanding, and the price per share is $58. EBIT is expected to remain at $24,200 per year forever. The interest rate on new debt is 7.5 percent, and there are no taxes. a. Allison, a shareholder of the firm, owns 200 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 200 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your…