Question
In: Finance
Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt...
Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions.
2) If WyoOne Corp. announces a share buyback program at $22.5 per share, how many shares (in millions) can the company buyback?
3) If WyoOne Corp. announces a share buyback program at $22.5, how many shares (in millions) will be remaining after the buyback?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Flashtronics is trying to determine its optimal capital structure. The company’s capital structure consists of debt...
Flashtronics is trying to determine its optimal capital
structure. The company’s capital structure consists of debt and
common stock. In order to estimate the cost of debt, the
company has produced the following table:
Debt-to-total- Equity-to-total- Debt-to-equity Bond B-T
cost
assets ratio
(wd) assets
ratio
(wc) ratio
(D/E) rating of
debt
0.10 0.90 0.10/0.90
=
0.11 AA 6.0%
0.20 0.80 0.20/0.80
=
0.25 A 6.6
0.30 0.70 0.30/0.70
=
0.43 A 7.3
0.40 0.60 0.40/0.60
=
0.67 BB 7.9
0.50 0.50 0.50/0.50
=
1.00 B 8.7
The company’s tax rate is 35 percent.
The company currently has a D/E ratio of 20% and uses the CAPM
to estimate...
Understanding the optimal capital structure Review this situation: Transworld Consortium Corp. is trying to identify its...
Understanding the optimal capital structure
Review this situation: Transworld Consortium Corp. is trying to
identify its optimal capital structure. Transworld Consortium Corp.
has gathered the following financial information to help with the
analysis.
Debt Ratio
Equity Ratio
EPS
DPS
Stock Price
30%
70%
1.55
0.34
22.35
40%
60%
1.67
0.45
24.56
50%
50%
1.72
0.51
25.78
60%
40%
1.78
0.57
27.75
70%
30%
1.84
0.62
26.42
Which capital structure shown in the preceding table is
Transworld Consortium Corp.’s optimal capital...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $27.15, Long Run Growth rate = 4.4%, Next Year's Dividend =
$1.88. Show your answer to the nearest .1%. Do not use the % sign
in your answer. Enter your answer as a whole number, thus 9.2%...
A company has determined that its optimal capital structure consists of 40 percent debt and 60...
A company has determined that its optimal capital structure
consists of 40 percent debt and 60 percent equity. Given the
following information, calculate the firm's weighted average cost
of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock
Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend =
$2.26. Show your answer to the nearest .1%. Do not use the % sign
in your answer. Enter your answer as a whole number, thus 9.2%...
Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium...
Review this situation: Transworld Consortium Corp. is trying to
identify its optimal capital structure. Transworld Consortium Corp.
has gathered the following financial information to help with the
analysis.
Debt Ratio
Equity Ratio
EPS
DPS
Stock Price
30%
70%
1.55
0.34
22.35
40%
60%
1.67
0.45
24.56
50%
50%
1.72
0.51
25.78
60%
40%
1.78
0.57
27.75
70%
30%
1.84
0.62
26.42
Which capital structure shown in the preceding table is
Transworld Consortium Corp.’s optimal capital structure?
A.) Debt ratio =...
Aaron Athletics is trying to determine its optimal capital structure. The company’s capital structure consists of...
Aaron Athletics is trying to determine its optimal capital
structure. The company’s capital structure consists of debt and
common stock. In order to estimate the cost of debt, the company
has produced the following table:
Debt-to-total-
Equity-to-total-
Debt-to-equity
Bond B-T cost
assets ratio
(wd)
assets ratio
(wc)
ratio
(D/E)
rating of debt
0.10
0.90
0.10/0.90 = 0.11
AA 7.0%
0.20
0.80
0.20/0.80 =
0.25
A 7.2
0.30
0.70
0.30/0.70...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure...
Situational Software Co. (SSC) is trying to establish its
optimal capital structure. Its current capital structure consists
of 20% debt and 80% equity; however, the CEO believes that the firm
should use more debt. The risk-free rate, rRF, is 5%; the market
risk premium, RPM, is 6%; and the firm's tax rate is 40%.
Currently, SSC's cost of equity is 12%, which is determined by the
CAPM. What would be SSC's estimated cost of equity if it changed
its capital...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure...
Situational Software Co. (SSC) is trying to establish its
optimal capital structure. Its current capital structure consists
of 40% debt and 60% equity; however, the CEO believes that the firm
should use more debt. The risk-free rate, rRF, is 5%;
the market risk premium, RPM, is 6%; and the firm's tax
rate is 40%. Currently, SSC's cost of equity is 15%, which is
determined by the CAPM. The data has been collected in the
Microsoft Excel Online file below. Open...
Situational Software Co. (SSC) is trying to establish its optimal capital structure. Its current capital structure...
Situational Software Co. (SSC) is trying to establish its
optimal capital structure. Its current capital structure consists
of 25% debt and 75% equity; however, the CEO believes that the firm
should use more debt. The risk-free rate, rRF, is 4%;
the market risk premium, RPM, is 6%; and the firm's tax
rate is 40%. Currently, SSC's cost of equity is 12%, which is
determined by the CAPM. The data has been collected in the
Microsoft Excel Online file below. Open...
Which of the following statements best describes the optimal capital structure? a. The optimal capital structure...
Which of the following statements best describes the optimal
capital structure?
a.
The optimal capital structure is the mix of debt, equity, and
preferred stock that maximizes the company's earnings per share
(EPS).
b.
The optimal capital structure is the mix of debt, equity, and
preferred stock that minimizes the company's cost of preferred
stock.
c.
The optimal capital structure is the mix of debt, equity, and
preferred stock that minimizes the company's cost of debt.
d.
The optimal capital...
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