Question
In: Finance
DA Inc. is currently an all-equity firm, with a value of $500. It has 25 shares...
DA Inc. is currently an all-equity firm, with a value of $500.
It has 25 shares outstanding. The EBIT is 153.85 per year forever.
The tax rate is 35%. The payout is 100%. It is planning to do a
capital restructuring by issuing $200 of perpetual debt, costing
10% and use the proceeds to repurchase stock.
- What is the cost of unlevered equity?
- How many shares will it repurchase? At what price?
- What is the cost of levered equity? Confirm your answer by both
computing the PV of all cash flows to shareholders at levered
equity cost and using MMII.
Solutions
jeff jeffy answered 1 week agoRelated Solutions
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at...
Roger Inc. is currently an all equity firm that has 500,000
shares of stock outstanding at a market price of $20 a share. EBIT
is $1,500,000 and is constant forever. The required annual rate of
return on the share is 12%. The corporate tax is 35%. The firm is
proposing borrowing an additional $2 million in debt and uses the
proceeds to repurchase stock. If it does so, the cost of debt will
be 10%. What will be the WACC...
Roger Inc. is currently an all equity firm that has 500,000 shares of stock outstanding at...
Roger Inc. is currently an all equity firm that has 500,000
shares of stock outstanding at a market price of $20 a share. EBIT
is $1,500,000 and is constant forever. The required annual rate of
return on the share is 12%. The corporate tax is 35%. The firm is
proposing borrowing an additional $2 million in debt and uses the
proceeds to repurchase stock. If it does so, the cost of debt will
be 10%. What will be the WACC...
MM Inc. is an all-equity firm (the firm value equals the value of equity). As the...
MM Inc. is an all-equity firm (the firm value equals the value
of equity). As the CEO of MM Inc., you are considering purchasing a
private jet for the firm. The private jet costs $12 million today
and will save $2 million (in today’s value) on travel expenses for
the firm over its life. You own 1% of MM's equity ownership. The
private benefits of the private jet to you are estimated to be
$800,000 in today’s value.
Suppose you...
MM Inc. is an all-equity firm (the firm value equals the value of equity). As the...
MM Inc. is an all-equity firm (the firm value equals the value
of equity). As the CEO of MM Inc., you are considering purchasing a
private jet for the firm. The private jet costs $12 million today
and will save $2 million (in today’s value) on travel expenses for
the firm over its life. You own 1% of MM's equity ownership. The
private benefits of the private jet to you are estimated to be
$800,000 in today’s value.
Suppose you...
?Zelnor, Inc., is an? all-equity firm with 180 million shares outstanding currently trading for $ 11.52...
?Zelnor, Inc., is an? all-equity firm with 180 million shares
outstanding currently trading for $ 11.52 per share. Suppose Zelnor
decides to grant a total of 18 million new shares to employees as
part of a new compensation plan. The firm argues that this new
compensation plan will motivate employees and is better than giving
salary bonuses because it will not cost the firm anything. Assume
perfect capital markets. a. If the new compensation plan has no
effect on the...
XYZ, Inc., is an all-equity firm with a total market value of $729,000 and 47,300 shares...
XYZ, Inc., is an all-equity firm with a total market value of
$729,000 and 47,300 shares of stock outstanding. Management
believes the earnings before interest and taxes (EBIT) will be
$95,400 if the economy is normal. If there is a recession, EBIT
will be 30 percent lower, and if there is a boom, EBIT will be 40
percent higher. The tax rate is 35 percent. What is the EPS in a
boom?
Windsor, Inc. is currently an all-equity financed firm, and its cost of equity is 12%. It has...
Windsor, Inc. is currently an all-equity financed firm, and its
cost of equity is 12%. It has 20,000 shares outstanding
that sell for $25 each. The firm contemplates a restructuring that
would borrow $100,000 in perpetual debt at an interest rate of 8%
which will be used to repurchase stock. Assume that the corporate
tax rate is 35%.
(1) Calculate the present value of the interest tax shields and
the value of the firm after the proposed restructuring.
(2) What will...
4. Clarkson Corporation is currently an all equity firm that has 450,000 shares of stock outstanding...
4. Clarkson Corporation is currently an all equity firm that has
450,000 shares of stock outstanding with a market price of $52.40 a
share. The current cost of equity is 10.5 percent and the tax rate
is 25 percent. The firm is considering adding $6.3 million of debt
with a coupon rate of 6 percent to its capital structure. The debt
will be sold at par value. What is the levered value of the
equity?
a
$18,855,000
b
$19,247,000
c...
Gail's Dance Studio is currently an all equity firm that has 80,000 shares of stock outstanding...
Gail's Dance Studio is currently an all equity firm that has
80,000 shares of stock outstanding with a market price of $42 a
share. The current cost of equity is 12% and the tax rate is 34%.
Gail is considering adding $1 million of debt with a coupon rate of
8% to her capital structure. The debt will be sold at par value.
What is the levered value of the equity?
i have the answer for this question. it was:...
SOS Ltd is currently an all-equity firm and has a market value of $800,000. SOS is...
SOS Ltd is currently an all-equity firm and has a market value
of $800,000. SOS is evaluating whether a levered capital structure
would maximize the wealth of shareholders. The cost of equity is
currently 15%. The new capital structure under consideration is an
issue of $400,000 new perpetual debt with an 8% interest rate.
There are currently 32,000 shares outstanding and a tax rate of 35%
applies to this firm. If SOS finally changes to the new levered
capital structure,...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- You are given the following information: Stockholders' equity as reported on the firm’s balance sheet =...
- You are the manager of a U.S. company situated in Los Angeles and manages the import/export...
- RLC Circuit/critical damping. Methodology for critical resistance measurements. What is the random error associated with the...
- Question One (Chapter Two): Pick two of the theories of mis-perception: self-fulfilling prophecy, personality theory, primacy-recency,...
- Basic guide to developing a research design ( Please provide EXAMPLES in terms to Politics !!)...
- A box of mass 1kg is placed on a vertical spring (k=1000N/m) and pushed down so...
- What is the theory behind GC and IR analysis?
ADVERTISEMENT