Dabney Electronics currently has no debt. Its operating income (EBIT) is $30 million and its tax rate is 40 percent. It pays out all of its net income as dividends and has a zero growth rate. It has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10 percent. What would its stock price be immediately after issuing debt if it changes to the new capital structure?
(Hint: Find value of the firm after capitalization using Va = FCF1/(WACC-g), and then calculate price of the stock using P0 = [S + (D – D0) ] / n0)
a.$90
b.$60
c.$48
d.$200
e.$72
Dabney Electronics currently has no debt. Its operating income (EBIT) is $30 million and its tax...
Dabney Electronics currently has no debt. Its operating income (EBIT) is $30 million and its tax rate is 40 percent. It pays out all of its net income as dividends and has a zero growth rate. It has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values), its investment bankers believe its weighted average cost of capital would be 10 percent. What would...
* The Rivoli Company has no debt outstanding, and its financial position is given by the following data; Asset (book = market) $3,000,000 EBIT $ 500,000 Cost of equity, rs 10% Stock price, P0 $15 Shares outstanding, n0 200,000 Tax rate, T (federal +state) 40% The firm is considering bonds and simultaneously repurchasing some of its stock. If it moves to capital structure with 30% debt based on market values, its...
After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $550 million. The depreciation expense for 2020 is expected to be $60 million. The capital expenditures for 2020 are expected to be $450 million. No change is expected in net operating working capital. The free cash flow is expected to grow at a constant rate of 3% per year. The required return on equity is 15%. The WACC is 9%. The firm has $209 million of non-operating assets....
Shandy Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 13%, and its marginal tax rate is 25%. The current stock price is P0 = $25.50. The last dividend was D0 = $2.50, and it is expected to grow at a 7% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal places....
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 9%, and its marginal tax rate is 25%. The current stock price is P0 = $32.50. The last dividend was D0 = $4.00, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
ABC company currently has an all equity capital structure. ABC has an expected operating income (EBIT) of $12,000. Assume that this EBIT figure is perpetual, that is to say, EBIT will continue at this same level forever. Its cost of equity (which is also its WACC since there is no debt financing currently) is 11.3 percent. ABC company has plans to issue $32,500 in debt at a cost of 5.4 percent in order to buy back a same amount of...
Palencia Paints Corporation has a target capital structure of 40% debt and 60% common equity, with no preferred stock. Its before-tax cost of debt is 10%, and its marginal tax rate is 25%. The current stock price is P0 = $34.50. The last dividend was D0 = $2.50, and it is expected to grow at a 4% constant rate. What is its cost of common equity and its WACC? Do not round intermediate calculations. Round your answers to two decimal...
Palencia Paints Corporation has a target capital structure of 30% debt and 70% common equity, with no preferred stock. Its before-tax cost of debt is 11%, and its marginal tax rate is 25%. The current stock price is P0 = $33.00. The last dividend was D0 = $2.00, and it is expected to grow at a 6% constant rate. What is its cost of common equity and its WACC?
Palencia Paints Corporation has a target capital structure of 35% debt and 65% common equity, with no preferred stock. Its before-tax cost of debt is 8%, and its marginal tax rate is 40%.The current stock price is P0 $22 00.The last dividend was D0 $2 25, and it is expected to grow at a 5% constant rate. What is its cost of common equity and its WACC?
Palencia Paints Corporation has a target capital structure of 45% debt and 55% common equity, with no preferred stock. Its before-tax cost of debt is 13%, and its marginal tax rate is 40%. The current stock price is P0 = $20.00. The last dividend was D0 = $2.00, and it is expected to grow at a 8% constant rate. What is its cost of common equity and its WACC? Round your answers to two decimal places. Do not round your...