#4. Green Manufacturing is an all equity firm with a current market value of $20,000,000 and 500,000 shares outstanding. The current expected return on the firm's stock is 20%. Green plans to announce that it will issue $2,000,000 of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6% interest rate. After the sale of the bonds and the share repurchase, Green will maintain the new capital structure indefinitely. The corporate tax rate for Green is 30% and there are no personal taxes. (a) What will the stock price be immediately after Green announces its plan to issue bonds and repurchase equity? (b) What will the total market value of the firm's equity be immediately after Green announces its plan to issue bonds and repurchase equity? (c) How many shares will Green repurchase? (d) What will be the market value of Green's equity after the bond issue and share repurchase are completed? (e) What was Green's weighted average cost of capital before the change in capital structure? (f) What is Green's weighted average cost of capital after the change in capital structure?
#4. Green Manufacturing is an all equity firm with a current market value of $20,000,000 and...
The Gulf Power Company currently is an all-equity firm. The value of Gulf Power's equity is $12,000,000 and there are 600,000 shares outstanding. The expected annual EBIT of Gulf Power is $2,400,000. Those earnings are also expected to remain constant into the foreseeable future. Gulf Power is in the 40-percent tax bracket. The Gulf Power Company plans to announce that it will issue $3,000,000 of perpetual bonds and uses the proceeds to repurchase common stock. The bonds will have a...
An- all equity firm is subject to 30% corporate tax rate. It's total market value is initially $3,500,000. There are 175,000 shares outstanding. It announces that it will issue $1 million of bonds at 10% interest and uses the proceeds to buy back common stock. A. What will happen to the market value of equity at the announcement of share repurchase? B. How many shares can the firm buy back with he $1 million bond issue. C. The cost of...
Hotel Cortez is an all-equity firm that has 10,000 shares of stock outstanding at a market price of $33 per share. The firm's management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 9 percent. What is the break-even EBIT? Multiple Choice $29,430 $34,488 $31,883 $30,656 $25,226 Taunton's is an all-equity firm that has 154,000 shares of stock outstanding. The CFO is...
Kurz Manufacturing is currently an all-equity firm with 2727 million shares outstanding and a stock price of $ 8.00 per share. Although investors currently expect Kurz to remain an all-equity firm, Kurz plans to announce that it will borrow $ 59 million and use the funds to repurchase shares. Kurz will pay interest only on this debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 21%corporate tax rate. a....
Kurz Manufacturing is currently an all-equity firm with 31 million shares outstanding and a stock price of $ 10.50 per share. Although investors currently expect Kurz to remain an all-equity firm, Kurz plans to announce that it will borrow $ 42 million and use the funds to repurchase shares. Kurz will pay interest only on this debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 38 % corporate tax...
19. A firm has a cost of debt of 6 percent and a cost of equity of 13.7 percent. The debt–equity ratio is 1.02. There are no taxes. What is the firm's weighted average cost of capital? 20. Hotel Cortez is an all-equity firm that has 5,500 shares of stock outstanding at a market price of $15 per share. The firm's management has decided to issue $30,000 worth of debt and use the funds to repurchase shares of the outstanding...
Washington Beltway is consulting firm financed entirely by common stock and has 15M shares outstanding with a price of $2 per share. It earnings per share are $0.20 and it has a required return on equity (unlevered) of 10%. It announces that it intends to issue $10M of debt and use the proceeds to buy back common stock at market prices. a. How many shares should the company be able to buy back with the $10m proceeds from the debt...
co Salad Manufacturing, Inc., plans to announce that it will issue $2.11 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 9 percent. The company is currently all-equity and worth $6.58 million with 194,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $1.35 million are expected to remain constant...
ABC Corporation is an all-equity firm. The total market value of the firm is $60 million (which includes $20 million in cash), and there are 1,500,000 shares outstanding. There are no taxes. The firm is considering using $15 million of cash to pay a special one-time dividend or repurchase shares. The company’s current earnings per share are $5.00. If the firm pays the dividend, what will be the share price of ABC stock on the ex-dividend date? ABC Corporation is...
Question 1 a. Kappa is an all-equity firm. It has 120,000 shares outstanding, currently worth £20 per share. The unlevered cost of equity is 20%. The firm has decided to issue £1,000,000 of 8% debt, and to use the proceeds to repurchase shares. Assume a 28% corporate tax rate. i. According to Modigliani-Miller Proposition I with corporate taxes, what is the market value of the firm’s equity after the repurchase? (6 marks) ii. What are the firm’s earnings before interest...