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2. An unlevered firm with a market value of $1 million has 50,000 shares outstanding. The...
Firm C currently has 250,000 shares outstanding with current market value of $42.00 per share and...
Firm C currently has 250,000 shares outstanding with current
market value of $42.00 per share and generates an annual EBIT of
$1,250,000. Firm C also has $1 million of debt outstanding. The
current cost of equity is 8 percent and the current cost of debt is
5 percent. The firm is considering issuing another $2 million of
debt and using the proceeds of the debt issue to repurchase shares
(a pure capital structure change). It is estimated that the cost...
Trivoli Inc. is an all-equity firm with 1,000,000 shares outstanding. The company's EBIT is $2,500,000, and...
Trivoli Inc. is an all-equity firm with 1,000,000 shares outstanding. The company's EBIT is $2,500,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share (EPS) equals its dividends per share (DPS). The company's tax rate is 25%. The company is considering issuing $3.25 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated...
Fortis Ltd. is currently an all equity firm with a total market value of $28,400,000 with 1,200,000 shares of stock outs...
Fortis Ltd. is currently an all equity firm with a total market value of $28,400,000 with 1,200,000 shares of stock outstanding. The firm has expected EBIT of $1,660,000 if the economy is normal and $2,750,000 if the economy booms. The firm is considering a $6,800,000 bond issue with an attached interest rate of 5 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms?...
Angina Inc. has 5 million shares outstanding. The firm is considering issuing an additional 1 million...
Angina Inc. has 5 million shares outstanding. The firm is considering issuing an additional 1 million shares. After selling these shares at $22 per share offering price and netting 95% of the sale proceeds, the firm is obligated by an earlier agreement to sell an additional 247,000 shares at 90% of the offering price. In total, how much cash will the firm net from these stock sales?
Debt-free, Inc., an unlevered firm, is planning to use debt in its capital structure. The firm...
Debt-free, Inc., an unlevered firm, is planning to use debt in its capital structure. The firm currently has 5,000 shares outstanding trading at $60 per share. The firm plans to sell 150 6% annual-coupon, 10-year bonds at their face values of $1,000 each and use the proceeds to repurchase some of its shares. When the bonds mature, Debt-free, Inc. plans to reissue new bonds to pay off the principal and to “roll over” its debt this way indefinitely. Assume the...
Brand Corp. is currently unlevered. The firm has $960,000 in earnings before interest and taxes (EBIT)...
Brand Corp. is currently unlevered. The firm has $960,000 in earnings before interest and taxes (EBIT) and the unlevered cost of capital is 12%. The firm wants to issue $1,600,000 in debt to repurchase stock. The perpetual bonds have a 5% yield. The tax rate is 25%. Find the value of the levered firm (Vl). For the levered firm, find the cost of equity. Unless stated otherwise, compounding is annual and payments occur at the end of the period.
An unlevered firm has a value of $650 million. An otherwise identical but levered firm has...
An unlevered firm has a value of $650 million. An otherwise identical but levered firm has $125 million in debt. Under the MM zero-tax model, what is the value of the levered firm? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. $ ? million
Southern Wind is an all-equity firm with 16,900 shares of stock outstanding and a total market...
Southern Wind is an all-equity firm with 16,900 shares of stock outstanding and a total market value of $352,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $26,000 if the economy is normal, $14,000 if the economy is in a recession, and $38,000 if the economy booms. Ignore taxes. Management is considering issuing $88,000 of debt with an interest rate of 6 percent. If the firm issues the debt, the...
Kelso Electric is an all-equity firm with 44,750 shares of stock outstanding. The company is considering...
Kelso Electric is an all-equity firm with 44,750 shares of stock outstanding. The company is considering the issue of $305,000 in debt at an interest rate of 7 percent and using the proceeds to repurchase stock. Under the new capital structure, there would be 27,500 shares of stock outstanding. Ignore taxes. What is the break-even EBIT between the two plans?
Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm...
Vader Corp. is a firm that generates a perpetual EBIT of $50,000 per year. The firm currently has no debt and has 50,000 shares outstanding. The cost of capital is 10%. The firm is thinking of issuing $200,000 in debt and using the proceeds to repurchase equity. The firm could borrow the funds at 8%. If there are no corporate taxes and M&M Proposition I holds, what would be the market value of Vader Corp. if it issues the debt...
Firm C currently has 250,000 shares outstanding with current
market value of $42.00 per share and generates an annual EBIT of
$1,250,000. Firm C also has $1 million of debt outstanding. The
current cost of equity is 8 percent and the current cost of debt is
5 percent. The firm is considering issuing another $2 million of
debt and using the proceeds of the debt issue to repurchase shares
(a pure capital structure change). It is estimated that the cost...
Trivoli Inc. is an all-equity firm with 1,000,000 shares outstanding. The company's EBIT is $2,500,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share (EPS) equals its dividends per share (DPS). The company's tax rate is 25%. The company is considering issuing $3.25 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated...
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