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Bruin Industries just issued $390,000 of perpetual 6.9 percent debt and used the proceeds to repurchase...
Bruin Industries just issued $390,000 of perpetual 6.9 percent debt and used the proceeds to repurchase stock. The company expects to generate $185,000 of earnings before interest and taxes in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firm’s unlevered cost of capital is 11.9 percent and the corporate tax rate is 23 percent. a. What is the value of the company as an unlevered firm? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Use the adjusted present value method to calculate the value of the company with leverage. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What is the required return on the firm’s levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d. Use the flow to equity method to calculate the value of the company’s equity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
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jeff jeffy answered 2 years agoRelated Solutions
Bruin Industries just issued $340,000 of perpetual 5.9 percent debt and used the proceeds to repurchase...
Bruin Industries just issued $340,000 of perpetual 5.9 percent
debt and used the proceeds to repurchase stock. The company expects
to generate $155,000 of earnings before interest and taxes in
perpetuity. The company distributes all its earnings as dividends
at the end of each year. The firm’s unlevered cost of capital is
10.9 percent and the corporate tax rate is 23 percent.
a.
What is the value of the company as an unlevered firm?
(Do not round intermediate calculations...
Bruin Industries just issued $295,000 of perpetual 7 percent debt and used the proceeds to repurchase...
Bruin Industries just issued $295,000 of perpetual 7 percent
debt and used the proceeds to repurchase stock. The company expects
to generate $130,000 of earnings before interest and taxes in
perpetuity. The company distributes all its earnings as dividends
at the end of each year. The firm’s unlevered cost of capital is 12
percent, and the corporate tax rate is 40 percent.
What is the value of the company as an unlevered firm?
(Do not round intermediate calculations and round...
Bruin Industries just issued $415,000 of perpetual 7.4 percent debt and used the proceeds to repurchase...
Bruin Industries just issued $415,000 of perpetual 7.4 percent
debt and used the proceeds to repurchase stock. The company expects
to generate $200,000 of earnings before interest and taxes in
perpetuity. The company distributes all its earnings as dividends
at the end of each year. The firm’s unlevered cost of capital is
12.4 percent and the corporate tax rate is 23 percent.
a.
What is the value of the company as an unlevered firm?
(Do not round intermediate calculations...
Bruin Industries just issued $320,000 of perpetual 8 percent debt and used the proceeds to repurchase...
Bruin Industries just issued $320,000 of perpetual 8 percent
debt and used the proceeds to repurchase stock. The company expects
to generate $135,000 of earnings before interest and taxes in
perpetuity. The company distributes all its earnings as dividends
at the end of each year. The firm’s unlevered cost of capital is 15
percent, and the corporate tax rate is 40 percent.
a.
What is the value of the company as an unlevered firm?
(Do not round intermediate calculations...
Lone Star Industries just issued $800 of perpetual 12% debt and used the proceeds to repurchase...
Lone Star Industries just issued $800 of perpetual 12% debt and
used the proceeds to repurchase stock. The company expects to
generate $185 of earnings before interest and taxes in perpetuity.
Lone Star distributes all of its earnings as dividends at the end
of each year. The firm’s unlevered cost of capital is 18% and the
corporate tax rate is 40%.
A.What is the value of Lone Star as an unlevered firm?
B.Use
the Adjusted Present Value Method to...
Doyle Company issued $390,000 of 10-year, 9 percent bonds on January 1, 2018. The bonds were...
Doyle Company issued $390,000 of 10-year, 9 percent bonds on
January 1, 2018. The bonds were issued at face value. Interest is
payable in cash on December 31 of each year. Doyle immediately
invested the proceeds from the bond issue in land. The land was
leased for an annual $56,500 of cash revenue, which was collected
on December 31 of each year, beginning December 31, 2018.
A) Prepare the income statement, balance sheet, and statement of
cash flows for 2018...
Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent...
Johnson Industries finances its projects with 40 percent debt,
10 percent preferred stock, and 50 percent common stock.
·
The company can issue bonds at a yield to maturity of 7.4
percent.
·
The cost of preferred stock is 9 percent.
·
The company's common stock currently sells for $32 a share.
·
The company's dividend has just paid $2.00 a share
(D0 = $2.00), and is expected to grow at a constant rate
of 7 percent per year.
·...
Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent...
Johnson Industries finances its projects with 40 percent debt,
10 percent preferred stock, and 50 percent common stock.
·
The company can issue bonds at a yield to maturity of 7.5
percent.
·
The cost of preferred stock is 9 percent.
·
The company's common stock currently sells for $31 a share.
·
The company's dividend has just paid $2.00 a share
(D0 = $2.00), and is expected to grow at a constant rate
of 8 percent per year.
·...
5. OLL Ltd has just issued a perpetual (that is, non-maturing) financial security that is expected...
5. OLL Ltd has just issued a perpetual (that is, non-maturing)
financial security that is expected to pay an annual coupon of $120
next year. This coupon will then decline at a rate of 2%
per annum forever. If the interest rate on this security is 8%
p.a., its price today should be closest to:
Group of answer choices
$1,200.
$1,500.
$2,000.
$6,000.
Cost of debt. Kenny Enterprises has just issued a bond with a par value of $1,000,...
Cost of debt. Kenny Enterprises has just issued a bond with a
par value of $1,000, a maturity of twenty years, and a coupon
rate of 8.9% with semiannual payments. What is the cost of debt
for Kenny Enterprises if the bond sells at the following prices?
What do you notice about the price and the cost of debt?
a. $956.14
b. $1,000.00
c. $1,035.22
d. $1,137.07
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