Question

In: Finance

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $25.7 million in...

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $25.7 million in perpetuity. The current required return on the firm’s equity is 13 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.96 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $35.9 million of perpetual 5.8 percent debt and use the proceeds to buy back shares.

a-1.

Calculate the value of the company before the recapitalization plan is announced. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

a-2. What is the price per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b-1. Use the APV method to calculate the company value after the recapitalization plan is announced. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
b-2. What is the price per share after the recapitalization is announced? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c-1. How many shares will be repurchased? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)
c-2. What is the price per share after the recapitalization and repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
d. Use the flow to equity method to calculate the value of the company’s equity after the recapitalization. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

a-1 Current Value: 152,223,077

a-2 Price per share: 77.66

b-1: Value after recapitalization: 160,480,077

b-2: Price per share: 81.88

c-1: Shares repurchased: ?

c-2: Price per share: ?

d. Value of the equity: ?

*Need help with c-1, c-2, and d. Thanks!

     

Solutions

Expert Solution

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


Related Solutions

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $28.1 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $28.1 million in perpetuity. The current required return on the firm’s equity is 11 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.08 million shares of common stock outstanding and is subject to a corporate tax rate of 24 percent. The firm is planning a recapitalization under which it will issue $37.7 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.7 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.7 million in perpetuity. The current required return on the firm’s equity is 12 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.26 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $40.4 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.3 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.3 million in perpetuity. The current required return on the firm’s equity is 11 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.45 million shares of common stock outstanding and is subject to a corporate tax rate of 22 percent. The firm is planning a recapitalization under which it will issue $40.1 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $27.7 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $27.7 million in perpetuity. The current required return on the firm’s equity is 14 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.06 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $37.4 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.3 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.3 million in perpetuity. The current required return on the firm’s equity is 11 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.45 million shares of common stock outstanding and is subject to a corporate tax rate of 22 percent. The firm is planning a recapitalization under which it will issue $40.1 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $27.3 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $27.3 million in perpetuity. The current required return on the firm’s equity is 13 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.04 million shares of common stock outstanding and is subject to a corporate tax rate of 22 percent. The firm is planning a recapitalization under which it will issue $37.1 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $25.7 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $25.7 million in perpetuity. The current required return on the firm’s equity is 13 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.96 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $35.9 million of perpetual...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.7 million in...
Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $31.7 million in perpetuity. The current required return on the firm’s equity is 12 percent and the firm distributes all of its earnings as dividends at the end of each year. The company has 2.26 million shares of common stock outstanding and is subject to a corporate tax rate of 23 percent. The firm is planning a recapitalization under which it will issue $40.4 million of perpetual...
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $21.6 million in...
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $21.6 million in perpetuity. The current required return on the firm’s equity is 16 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.36 million shares of common stock outstanding and is subject to a corporate tax rate of 34 percent. The firm is planning a recapitalization under which it will issue $30.6 million of perpetual...
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $22.4 million in...
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $22.4 million in perpetuity. The current required return on the firm’s equity is 20 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.44 million shares of common stock outstanding and is subject to a corporate tax rate of 35 percent. The firm is planning a recapitalization under which it will issue $31.4 million of perpetual...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT