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XYZ Motor Corp. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 1,500 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%.
XYZ Motor Corp. is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%.
If XYZ Motor Corp. goes ahead with the repurchase, then what is the stock price after the repurchase is complete?
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- XYZ Soda Inc. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 1,500 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds worth a total sum of $1,200 and a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ goes ahead with the repurchase, then what is its WACC after the repurchase is complete?XYZ Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?Tarbox Tobacco Inc. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Tarbox has a 100% payout rate. Tarbox has 1, 500 shares outstanding. The stock holders of Tarbox require a return of 5%. Assume that the tax rate is 0%. What is the price per share for Tarbox stock? (Round to the nearest whole number.)
- The DupT corporation plans to do a common stock issue to fund its next equity investment project. The market price of the corporation's stock is $ 75 per share. A dividend of $ 5 per share is expected to be paid at the end of the year. The corporation has had an average annual growth of 6%. The issue cost is $ 2.50 per share. Determine the cost of equity capital using Gordon's constant growth method (Gordon Growth Model). You will have to show the counts.Company Z has a total value of $ 500,000. On its balance sheet, it has a debt of $ 150,000 paid at 3%. The shareholders ask for a dividend of 10% a year. Company Z is yearly audited and pays all its due taxes. What is the capital structure for Z? What would be the risk profile of Z? How can capital structure influence the risk profile of Z?The total market value of the common stock of Company A is $12 million, and the total value of its debt is $8 million. The treasurer estimates that the beta of the stock is currently 1.20 and that the market risk premium is 7.5%. The Treasury bill rate is 2.5%. Assume for simplicity that Company A debt is risk-free. The Company's tax rate is 28% . a) What is the pre-tax cost of capital for Company A? b) What is the WACC for Company A ?
- Company A pays out all available earnings as dividends. Company A is is entirely equity financed and is borrowing money to repurchase shares. Company A has 550,000 shares outstanding and Acme is expected to generate $2,500,000 in EBIT every year for the foreseeable future. Company A shareholders require an 8% return on investment. If Company A borrows money, it will have to pay a 4% interest annually on debt Company A wants to borrow money to repurchase shares such that Company A shareholders achieve a return on equity (ROE) of 15%. How much money does Acme need to borrow to repurchase shares?A corporation will pay a dividend of $1.75 per share at this years end and a dividend of $2.25 per share at the end of next year. It is expected that the price of its stock will be $42 per share after two years. If the firm has an equity cost of capital of 9%, what is the maximum price that a prudent investor would be willing to pay for a share of the stock today? Do not include a dollar signSuppose Acap Corporation will pay a dividend of $2.83 per share at the end of this year and $3.07 per share next year. You expect Acap's stock price to be $52.34 in two years. Assume that Acap's equity cost of capital is 10.7%. a. What price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for two years? b. Suppose, instead, you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in part b, what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this price compare to your answer in part a? a. If you planned to hold the stock for two years, the price you would pay for a share of Acap stock today is $ (Round to the nearest cent.)
- Ms. Manners Catering (MMC) has paid a constant $1.50 per share dividend to its common stockholders for the past 25 years. MMC expects to continue this policy for the next two years, and then begin to increase the dividend at a constant rate equal to 2 percent per year into perpetuity. Investors require a 12 percent rate of return to purchase MMC's common stock. What is the market value of MMC's common stock? O$14.73 O$15.00 $15.58 $15.30Suppose Acap Corporation will pay a dividend of $2.75 per share at the end of this year and $2.95 per share next year. You expect Acap's stock price to be $51.61 in two years. Assume that Acap's equity cost of capital is 11.8%. a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in (b), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (a)? a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? If you plan to hold the stock for two years, the price you would pay for a share of Acap stock today is $_____ (Round to the nearest cent.) Part 2 b. Suppose instead you plan to hold…Suppose Acap Corporation will pay a dividend of $2.89 per share at the end of this year and $2.93 per share next year. You expect Acap's stock price to be $52.48 in two years. Assume that Acap's equity cost of capital is 11.3%. a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? c. Given your answer in (b), what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in (a)?