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In: Finance
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As...
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. A.) What is the market value of the firm before and after the repurchase announcement? B.) What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? C.) What is the expected return on the equity of an otherwise identical all-equity firm? D.) What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As...
Refi Corporation is planning to repurchase part of its common
stock by issuing corporate debt. As a result, the firm’s
debt-equity ratio is expected to rise from 40 percent to 50
percent. The firm currently has $3.8 million worth of debt
outstanding. The cost of this debt is 7 percent per year. The firm
expects to have an EBIT of $1.37 million per year in perpetuity and
pays no taxes.
a. What is the market value of the firm before...
Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As...
Locomotive Corporation is planning to repurchase part of its
common stock by issuing corporate debt. As a result, the firm’s
debt–equity ratio is expected to rise from 35% to 50%. The firm
currently has $3.1 million worth of debt outstanding. The cost of
this debt is 6.7% per year. Locomotive expects to earn $1.075
million per year in perpetuity. Locomotive pays no taxes.
a. What is the market value of Locomotive Corporation before and
after the repurchase announcement?
b. What...
Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As...
Refi Corporation is planning to repurchase part of its common
stock by issuing corporate debt. As a result, the firm’s
debt-equity ratio is expected to rise from 40 percent to 50
percent. The firm currently has $3.5 million worth of debt
outstanding. The cost of this debt is 7 percent per year. The firm
expects to have an EBIT of $1.34 million per year in perpetuity and
pays no taxes.
a.
What is the market value of the firm...
Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As...
Locomotive Corporation is planning to repurchase part of its
common stock by issuing corporate debt. As a result, the firm’s
debt–equity ratio is expected to rise from 35 percent to 50
percent. The firm currently has $3.1 million worth of debt
outstanding. The cost of this debt is 8 percent per year. The firm
expects to have an EBIT of $1.3 million per year in perpetuity and
pays no taxes.
a.
What is the market value of the firm...
10. Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt....
10. Locomotive Corporation is planning to repurchase part of its
common stock by issuing corporate debt. As a result, the firm’s
debt–equity ratio is expected to rise from 30 percent to 45
percent. The firm currently has $10 million worth of debt
outstanding. The cost of this debt is 6.5 percent per year. The
firm expects to have an EBIT of $3 million per year in perpetuity
and pays no taxes.
a. What is the market value of the firm...
The Kim Su Company is planning to repurchase shares of common stock with the proceeds of...
The Kim Su Company is planning to repurchase shares of common
stock with the proceeds of a $50,000,000 debt issue. The interest
rate on the debt is expected to be 10%. Currently, Kim Su is
unlevered with 12,000,000 common shares outstanding. The
price-earnings ratio of the common shares is 5 on pre-tax operating
income of $30,000,000. The equity has a required rate of return of
20% based on an equity beta of 1.20. Assuming the company’s tax
rate is 34%,...
(Repurchase of stock) The Dunn Corporation is planning to pay dividends of $560 comma 000 ....
(Repurchase of stock) The Dunn Corporation is planning to pay
dividends of $560 comma 000 . There are 280 comma 000 shares
outstanding, and earnings per share are $4 . The stock should sell
for $49 after the ex-dividend date. If, instead of paying a
dividend, the firm decides to repurchase stock, a. What should be
the repurchase price? b. How many shares should be repurchased?
c. What if the repurchase price is set below or above your
suggested price...
(Repurchase of stock) The Dunn Corporation is planning to pay dividends of $520 comma 000. There...
(Repurchase of stock) The Dunn Corporation is planning to pay
dividends of $520 comma 000. There are 260 comma 000 shares
outstanding, and earnings per share are $4. The stock should sell
for $49 after the ex-dividend date. If, instead of paying a
dividend, the firm decides to repurchase stock, a. What should be
the repurchase price?
b. How many shares should be repurchased?
c. What if the repurchase price is set below or above your
suggested price in part...
As part of the financial planning process, a common practice in the corporate finance world is...
As part of the financial planning process, a common practice
in the corporate finance world is restructuring through the process
of mergers and acquisitions (M&A). It seems that on a regular
basis, investment bankers arrange M&A transactions, forming one
company from separate companies. What are the advantages and the
disadvantages of a merger? In your response, provide an example of
either - a merger that was successful, or one that was
unsuccessful.
Write a paper of 1,000-1,250 content words
with...
Finance 600 : As part of the financial planning process, a common practice in the corporate...
Finance 600 :
As part of the financial planning process, a common practice
in the corporate finance world is restructuring through the process
of mergers and acquisitions (M&A). It seems that on a regular
basis, investment bankers arrange M&A transactions, forming one
company from separate companies. What are the advantages and the
disadvantages of a merger? In your response, provide an example of
either - a merger that was successful, or one that was
unsuccessful.
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