Question

In: Finance

HH Industries has 50 million shares that are currently trading for $4 per share and $200...

HH Industries has 50 million shares that are currently trading for $4 per share and $200 million worth of debt. The debt is risk free and has and interest rate of 5%, and the expected return of HH stock is 11%. Suppose a strike causes the price of HH stock to fall 25% to $3 per share. The value of the risk free debt is unchanged. Assuming there are no taxes and the risk of HH's assets is unchanged, what happens to HH's equity cost of capital?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 7 months ago
Next > < Previous

Related Solutions

Corporation X common stock is trading at $200 a share and it has 1 million shares...
Corporation X common stock is trading at $200 a share and it has 1 million shares outstanding. The stock’s beta is 1.2, the risk-free rate 2%, and the market portfolio is expected to return 9%. Their debt consists of two issues of bonds: Issue Maturity (years) Coupon (%) Market value (% of par) Amount outstanding (million $) A 15 8% 101 50 B 25 10% 102 40 Assuming Corporation X is subject to a 21% corporate tax rate, please find...
Inc has 200 million of shares outstanding trading at $10/share. The company has a beta of...
Inc has 200 million of shares outstanding trading at $10/share. The company has a beta of 1.2 and expected market return is 7%. T bill rate is 1.5%. the company has $25 million in interest expenses and a book value of debit of 125 million. The debt will mature in 12 years and it has a BB rating. The spread for a BB rating is 2.5 and the long term T bonds yield 4%. The company has an effective tax...
Suppose Corporation F stock is currently trading at $40 per share. There are 20 million shares...
Suppose Corporation F stock is currently trading at $40 per share. There are 20 million shares outstanding, and the company has no debt. You are a partner in a firm that specializes in leveraged buyouts. Your analysis indicates that the management of this corporation could be improved considerably. If the managers were replaced with more capable ones, you estimate that the value of the company would increase by 50%. You decide to initiate a leverage buyout and issue a tender...
Phantom enterprises' shares are trading at a price of $50 per share.
Phantom enterprises' shares are trading at a price of $50 per share. We know that Phantom's Price-Earnings ratio is 20x and the number of shares outstanding amounts to 10 million.  Estimate what Phantom's earnings?a.$2.5 millionb.$25.0 millionc.$10.0 milliond.$100.0 million
Suppose that you sell short 200 shares of Xtel, currently selling for $50 per share, and...
Suppose that you sell short 200 shares of Xtel, currently selling for $50 per share, and give your broker $6,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $56; (ii) $50; (iii) $45? Assume that Xtel pays no dividends. b. If the maintenance margin is 25%, how high can Xtel’s price rise before...
Suppose that you sell short 200 shares of Xtel, currently selling for $50 per share, and...
Suppose that you sell short 200 shares of Xtel, currently selling for $50 per share, and give your broker $6,000 to establish your margin account. a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Xtel stock is selling at: (i) $56; (ii) $50; (iii) $45? Assume that Xtel pays no dividends. b. If the maintenance margin is 25%, how high can Xtel’s price rise before...
MBM Industries is an all-equity firm with 50 million shares outstanding. MBM has £200 million in...
MBM Industries is an all-equity firm with 50 million shares outstanding. MBM has £200 million in cash and expects future free cash flows of £75 million per year. Management plans to use the cash to expand the firm's operations, which in turn will increase future free cash flows by 12%. MBM's cost of capital is 10%; assume that capital markets are perfect. i. What is the value of MBM if it uses the £200 million to expand? ii. What is...
Disney is currently trading at $1375 per share. It has 1.81 billion shares outstanding, and has...
Disney is currently trading at $1375 per share. It has 1.81 billion shares outstanding, and has a beta of 1.08. Disney. Disney has $68.31 billion worth bonds outstanding in market values. The last class of bonds that Disney issued had a coupon rate of 6% (coupon payments are paid semi-annual), and have a 1,000 face value. The bonds currently have 27 years left to maturity and are currently trading at 1045.70. Disney does not have any preferred stock outstanding. The...
Disney is currently trading at $131.75 per share. It has 1.81 billion shares outstanding, and has...
Disney is currently trading at $131.75 per share. It has 1.81 billion shares outstanding, and has a beta of 1.08. Disney. Disney has $68.31 billion worth bonds outstanding in market values. The last class of bonds that Disney issued had a coupon rate of 6% (coupon payments are paid semi-annual), and have a 1,000 face value. The bonds currently have 27 years left to maturity and are currently trading at 1045.70. Disney does not have any preferred stock outstanding. The...
Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using...
Suppose that ZX Inc. is currently selling at $50 per share. You buy 200 shares, using $5,000 of your own money and borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 5%. What is the rate of return on your margined position (assuming again that you invest $5,000 of your own money) if ZX Inc. is selling after one year at (i) $54, (ii) $50, (iii) $46?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT