1) Kohwe Corporation plans to issue equity to raise $ 40 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $ 11 million each year. Kohwe currently has 5 million shares outstanding, and it has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe's future free cash flows is 9 %, and the only capital market imperfections are corporate taxes and financial distress costs.
a. What is the NPV of Kohwe's investment?
b. What is Kohwe's share price today?
Suppose Kohwe borrows the $ 40 million instead. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $ 40 million on the loan. Suppose that Kohwe's corporate tax rate is 30 %, and expected free cash flows are still $ 11 million each year.
c. What is Kohwe's share price today if the investment is financed with debt?
Now suppose that with leverage, Kohwe's expected free cash flows will decline to $ 10
million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Kohwe's future free cash flows is still 9 %.
d. What is Kohwe's share price today given the financial distress costs of leverage?
a. What is the NPV of Kohwe's investment?
The NPV is ________ million. (Round to one decimal place.)
b. What is Kohwe's share price today?
The price today is __________ per share. (Round to the nearest cent.)
Suppose Kohwe borrows the $ 40 million instead. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $ 40 million on the loan. Suppose that Kohwe's corporate tax rate is 30 % and expected free cash flows are still $ 11 million each year.
c. What is Kohwe's share price today if the investment is financed with debt?
Kohwe's share price today, if the investment is financed with debt, is
per share. _____________ (Round to the nearest cent.)
Now suppose that with leverage, Kohwe's expected free cash flows will decline to $ 10 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Kohwe's future free cash flows is still 9 %.
d. What is Kohwe's share price today given the financial distress costs of leverage?
Kohwe's share price today given the financial distress costs of leverage is
___________per share. (Round to the nearest cent.)
We need at least 10 more requests to produce the answer.
0 / 10 have requested this problem solution
The more requests, the faster the answer.
1) Kohwe Corporation plans to issue equity to raise $ 40 million to finance a new...
Azumah Corporation plans to finance a new investment with leverage. Azumah Corporation plans to borrow $ 48.6 million to finance the new investment. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $ 48.6 million on the loan. After making the investment, Azumah expects to earn free cash flows of $ 10.7 million each year. However, due to reduced sales and other financial distress costs, Azumah's expected free cash flows...
Hawar International is a shipping firm with a current share price of $4.96 and 10.8 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $20.6 million and repurchasing shares, that Hawar pays a corporate tax rate of 30%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will the share price be after this announcement? b. Suppose the only imperfections are corporate taxes...
Hawar International is a shipping firm with a current share price of $ 5.47 and 10.9 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $ 20.3 million and repurchasing shares, that Hawar pays a corporate tax rate of 30 %, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will the share price be after this announcement? b. Suppose the only imperfections...
Lincoln Systems Co, is an all equity firm with 15 million shares of outstanding. A discount rate of 17 percent is appropriate a firm of risk. It is required to value stocks by using Free Cash Flows. The company’s revenues are forecasted to 500 million in one year are expected grow at 10 percent per year for the two years after that 7 percent per year for the next two years, and 6 percent per year after that. Expenses including...
A company wishes to finance a new project. It will raise 40 million dollars using four borrowing sources. The sources will be 3 million bonds 11 million bank loan 10 million common stock and 16 million preferred stock. The bonds will be at a dividend rate of 6 percent issued quarterly. The bank loan will be at 12 percent paid monthly. Earning per share of common stock are taken to be 14 cents per share with a stock price of...
FOB Ltd. is considering an investment opportunity. It requires an initial investment of $4 million and is expected to receive after-tax cash flows of $2.2 million at the end otf year 1 and $2.8 million in year 2. This investment is expected to last for two years only. The cost of capital is 12 percent if it is all-equity financed. FOB intends to borrow $1 million at an annual cost of 8 percent. The loan must be repaid in two...
River Enterprises has $503 million in debt and 18 million shares of equity outstanding. Its excess cash reserves are $14 million. They are expected to generate $194 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' cost of equity Capital is 11%. After analyzing the company, you believe that growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if you...
River Enterprises has $492 million in debt and 21 million shares of equity outstanding. Its excess cash reserves are $16 million. They are expected to generate $196 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' cost of equity capital is 12%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share be if...
River Enterprises has $490 million in debt and 21 million shares of equity outstanding. Its exce ss cash reserves are $ 14 million. They are expected to generate $208 million in free cash flows next year with a growth rate of 2% per year in perpetuity. River Enterprises' cost of equity capital is 12%. After analyzing the company, you believe that the growth rate should be 3% instead of 2%. How much higher (in dollars) would the price per share...
Charisma, Inc., has debt outstanding with a face value of $6.3 million. The value of the firm if it were entirely financed by equity would be $30.9 million. The company also has 430,000 shares of stock outstanding that sell at a price of $59 per share. The corporate tax rate is 23 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not...