Question

In: Finance

XYZ has 50,000 shares outstanding that sell for $30 each. The firm has an operating income...

XYZ has 50,000 shares outstanding that sell for $30 each. The firm has an operating income of $100,000 and pays no taxes. The firm contemplates a restructuring that would have 40% debt which will be used to repurchase stock. The cost of debt is 7%. Determine the value of the firm, EPS, and rate of return on the stock before and after the proposed restructuring.

Solutions

Expert Solution

Please find below the calculations before and after the restructuring:

Please like the answer if your query has been solved. Thanks!

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Fargo Corporation has 500,000 shares of common stock currently outstanding. The company plans to sell 50,000...
Fargo Corporation has 500,000 shares of common stock currently outstanding. The company plans to sell 50,000 more shares of common stock to the existing shareholders through a rights offering. How many rights will it take to buy one share?
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price per share today is INR 55. The firm is all equity financed and currently has a cash balance of INR 5 lakhs. What is the cash balance and price per share after the dividend pay out? You hold 1200 shares of this firm. You are upset that the firm has paid you dividend and want to undo the dividend effect from your port- folio?...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price per share today is INR 55. The firm is all equity financed and currently has a cash balance of INR 5 lakhs. What is the cash balance and price per share after the dividend payout? You hold 1200 shares of this firm. You are upset that the firm has paid you dividend and want to undo the dividend effect from your port- folio? What...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price per share today is INR 55. The firm is all equity financed and currently has a cash balance of INR 5 lakhs. What is the cash balance and price per share after the dividend payout? You hold 1200 shares of this firm. You are upset that the firm has paid you dividend and want to undo the dividend effect from your port- folio? What...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price...
A firm that 50,000 outstanding shares is planning to offer a DPS of 2.5. The price per share today is INR 55. The firm is all equity financed and currently has a cash balance of INR 5 lakhs. What is the cash balance and price per share after the dividend payout? You hold 1200 shares of this firm. You are upset that the firm has paid you dividend and want to undo the dividend effect from your port- folio? What...
Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding....
Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $1.00 par value. The preffered stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31, 2015, the company declares dividends of $0.25 per share for common. Provide the journal entry for the declaration of dividends.
You are holding a put option to sell 300 shares of XYZ Company by June 30...
You are holding a put option to sell 300 shares of XYZ Company by June 30 at a strike price of $31 per share? You paid $245 for these options. 1. If the stock's lowest price prior to June 30 is $33 per share, what gain or loss have you experienced on the option? 2.If the stock price is $28.75 on May 10th and you decide to exercise your option, how much gain did you make on the option?
Sound & Vision Studios (SVS) has 5 million common shares outstanding which sell for $30 per...
Sound & Vision Studios (SVS) has 5 million common shares outstanding which sell for $30 per share. SVS just paid a dividend $2.50 per share, and investors and analysts expect all future dividends to grow by 5% per year, indefinitely. The current risk-free rate is 2.50%, the expected return on the market is 10%, and the stock has a beta of 2.2. SVS also has 1 million shares of 7% preferred stock outstanding (par value of $100) selling for $35...
XYZ Satellites Inc. is an all equity firm with 200,000 shares outstanding and $20 million in...
XYZ Satellites Inc. is an all equity firm with 200,000 shares outstanding and $20 million in earnings after taxes with a market value of $350 million.The company borrows $75 million to repurchase#50000 shares @8%.The tax rate is 50%. 1) What effect will this have on the earning per share of the firm? 2) At what interest rate would have to be on the debt for the EPS effect to disappear?
SNC Inc., an unlevered firm, has 1 million shares outstanding, each trading at $25. The firm...
SNC Inc., an unlevered firm, has 1 million shares outstanding, each trading at $25. The firm is thinking of changing its capital structure by issuing $10 million of debt at 10% and will use the proceeds to repurchase shares. Assume the bank pays an interest rate of 10%. Assume that SNC Inc. decides to convert to the proposed capital structure. Jane, a shareholder of the firm, owns 15,000 shares. She prefers the cash flows she was receiving under the all-equity...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT