Monroe Inc is an all-equity firm with 1,000,000 shares outstanding. It has $5,000,000 of EBIT, and EBIT is expected to remain constant in the future. Thecompany pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 25%. The company is consideringng $10,000,000 of 8.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk premium is 5.0%, and the firm'sbeta is currently 10. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at theprice that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/r, because EPS = DPS.)$43.23O$36.31Oc$40.52Od $30.55$25.66

Earnings per share (EPS) shows how much of a company's profits are distributed to each outstanding…

Monroe Inc is an all-equity firm with 1,000,000 shares outsta company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (D ng $10,000,000 of Boo% boods and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk prem beta is currently L. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/rs because EPS = DPS.) # 563.23 O & $36.31 OCHES Od $30.55 $25.66

Monroe Inc is an all-equity firm with 1,000,000 shares outsta company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (D ng $10,000,000 of Boo% boods and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk prem beta is currently L. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/rs because EPS = DPS.) # 563.23 O & $36.31 OCHES Od $30.55 $25.66

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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