The Rivoli Company has no debt outstanding, and its financial position is given by the following data:
Expected EBIT = $600,000
Growth rate in EBIT gL = 0%
Cost of equity, rs = 10%
Shares outstanding, n0 = 200,000
Tax rate, T (federal-plus-state) = 25%
a. What is Rivoli’s intrinsic value of operations (i.e., its
unlevered value)? What is its intrinsic stock price? Its earnings
per share?
b. Rivoli is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 30% debt based on market values, its cost of equity, rs sold
at a cost, rd, will increase to 12% to reflect the increased risk.
Bonds can be , of 7%. Based on the new capital structure, what is
the new weighted average cost of capital? What is the levered value
of the firm? What is the amount of debt?
c. Based on the new capital structure, what is the new stock price?
What is the remain-ing number of shares? What is the new earnings
per share?
The Rivoli Company has no debt outstanding, and its financial position is given by the following...
* 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...
Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will...
Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: 10% Assets (Market value = book $3,000,000 value) EBIT $500,000 Cost of equity, rs Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, rs, will...
Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value = book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 25% debt based on market values, its cost of equity, rs, will...
Rising Tide, Inc. has no debt outstanding, and its financial position is given by the following data: Assets (market value = book value) $6,500,000 EBIT $765,000 Cost of equity 8% Stock price $16 Shares outstanding 406,250 Tax rate 35% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 20% debt based on market values, its cost of equity will increase to 9% to reflect the increased...
A) Select either I, II, or III. C) Select either "increased" or "decreased". Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value book value) $3,000,000 EBIT $500,000 Cost of equity, rs 10% Stock price, Po $15 Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 40% The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with...
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...
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...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered cost of capital is 14%. The company distributes all of its earnings to equity holders as dividends at the end of each year. And Roll Corporation is subject to a corporate tax rate of 30%. Roll Corporation estimates that its annual EBIT will be as follow: 20% Bust with EBIT 2600, 50% Expected with EBIT 3620, 30% Expansion with EBIT 4900. The firm expects...
Roll Corporation has 20,000 shares of common stock outstanding. It's financed entirely with equity. The un-levered cost of capital is 14%. The company distributes all of its earnings to equity holders as dividends at the end of each year. And Roll Corporation is subject to a corporate tax rate of 30%. Roll Corporation estimates that its annual EBIT will be as follow: 20% Bust with EBIT 2600, 50% Expected with EBIT 3620, 30% Expansion with EBIT 4900. The firm expects...