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In: Finance
Classy Office Supplies Inc. is an all equity firm with $2,000,000 in equity. It has been...
Classy Office Supplies Inc. is an all equity firm with $2,000,000 in equity. It has been suggested that they borrow $900,000 at 8% and use it to buy back shares of their own stock, thereby changing their capital structure. There are 50,000 shares outstanding and they currently sell for $40/share. EBIT is expected to be $1,000,000 next year. Classy is in the 21% tax bracket. What is the EPS under the current structure? How many shares will Classy be able to buy back? How many shares will Class have outstanding after the restructuring? What will the earnings per share be under the proposed structure? Should Classy do the restructuring?
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jeff jeffy answered 1 year agoRelated Solutions
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
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in the future. The company pays out all of its earnings, so
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The company is considering issuing $5,000,000 of 10.0% bonds and
using the proceeds to repurchase stock. The risk-free rate is 6.5%,
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but the...
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
Inc., has $2,000,000 of EBIT, which is expected to remain constant
in the future. The company pays out all of its earnings, so
earnings per share (EPS) equal dividends per shares (DPS). Its tax
rate is 40%.
The company is considering issuing $5,000,000 of 10.0% bonds and
using the proceeds to repurchase stock. The risk-free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently
0.95, but the...
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
Inc., has $2,000,000 of EBIT, which is expected to remain constant
in the future. The company pays out all of its earnings, so
earnings per share (EPS) equal dividends per shares (DPS). Its tax
rate is 40%. The company is considering issuing $5,000,000 of 10.0%
bonds and using the proceeds to repurchase stock. The risk-free
rate is 6.5%, the market risk premium is 5.0%, and the beta is
currently 0.95, but the...
An all-equity firm with 200,000 shares outstanding, has $2,000,000 of EBIT, which is expected to remain...
An all-equity firm with 200,000 shares outstanding, has
$2,000,000 of EBIT, which is expected to remain constant in the
future. The company pays out all of its earnings, so earnings per
share (EPS) equals dividends per share (DPS). Its tax rate is 40%.
The company is considering issuing $5,000,000 of 10% bonds and
using the proceeds to repurchase stock. The risk free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently 0.90,
but the CFO...
MM Inc. is an all-equity firm (the firm value equals the value of equity). As the...
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Suppose you...
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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...
The Quick Buck Company is an all-equity firm that has been in existence for the past...
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existence for the past three years. Company management expects that
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in two years, including the proceeds from the liquidation. There
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The Quick Buck Company is an all-equity firm that has been in existence for the past...
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existence for the past three years. Company management expects that
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firm will generate cash flows of $520,000 next year and $830,000 in
two years, including the proceeds from the liquidation. There are
21,000 shares of stock outstanding and shareholders require a
return of 10 percent.
a. What is the current price per share of the...
The Quick Buck Company is an all-equity firm that has been in existence for the past...
The Quick Buck Company is an all-equity firm that has been in
existence for the past three years. Company management expects that
the company will last for two more years and then be dissolved. The
firm will generate cash flows of $500,000 next year and $800,000 in
two years, including the proceeds from the liquidation. There are
20,000 shares of stock outstanding and shareholders require a
return of 12 percent.
Requirement 1:
What is the current price per share of...
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...
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