Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market
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Simpson Department Store
Simpson Department Stores operates retail department store chains throughout the United States. At the end of Year 10, Simpson reports debt of $5,897 million and common shareholders' equity at book value of $4,400 million. The market value of its common stock is $6,895, and its market equity beta is 0.79. An equity buyout group is considering an LBO of Simpson as of the beginning of Year 11.The group intends to finance the buyout with 25 percent common equity and 75 percent debt carrying an interest rate of 10.65 percent.
Regarding the equity buyout, compute the
Cost of Equity Capital is _______________________________
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- Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a.What is the maximum share price that Happy Times should be willing to pay for…While conducting a valuation study of Cross Corp for the annual update for the Trustees of the ESOP plan that owns a portion of the firm, you determine that the Terminal Value of the firm, at the end of a four-year Planning Period, is $120,070 (all $s in 000s). The firm’s capital structure is 30% debt and 70% equity, the cost of debt is 4%, and the cost of equity is 12%. The firm has a 24% tax rate. If the Present Value of Planning Period Cash Flows is $72,100, the Enterprise Value for Cross is: a. $72,100 b. $148,407 c. $156,194 d. $192,170 e. None of the aboveHappy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $200 million and a YTM of 5.8 percent. The company’s market capitalization is $440 million and the required return on equity is 11 percent. Joe’s currently has debt outstanding with a market value of $33.5 million. The EBIT for Joe’s next year is projected to be $13 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 21 percent. a. What is the maximum share price that Happy Times should be willing to pay for…
- DMC currently has 100,000 shares of common stock outstanding with a market price of $50 per share. It also has $2 million in 7% bonds currently selling at par. The company is considering a $4 million expansion program that it can finance either (I) all common stock at $50 per share, or (II) all bonds at 9%. The company estimates that if the expansion is undertaken, it can attain, in the near future, $1 million EBIT. Which plan is riskier, I or II? Why?DMC currently has 100,000 shares of common stock outstanding with a market price of $50 per share. It also has $2 million in 7% bonds currently selling at par. The company is considering a $4 million expansion program that it can finance either (I) all common stock at $50 per share, or (II) all bonds at 9%. The company estimates that if the expansion is undertaken, it can attain, in the near future, $1 million EBIT. Draw the EBIT-EPS graph.You are considering a stock investment in one of two firms (AllDebt, Inc., and AllEquity, Inc.), both of which operate in the same industry and have identical EBITDA of $15.5 million and operating income of $8.5 million. AllDebt, Inc., finances its $55 million in assets with $54 million in debt (on which it pays 10 percent interest annually) and $1 million in equity. AllEquity, Inc., finances its $55 million in assets with no debt and $55 million in equity. Both firms pay a tax rate of 21 percent on their taxable income. Calculate the income available to pay the asset—funders’ investment—(the debt holders and stockholders) and resulting return on assets for the two firms. (Enter your dollar answers in millions of dollars. Round all answers to 3 decimal places.) AllDebt AllEquity Income available for asset funders million million Return on asset-funders' investment % %
- Weaver Plus is a company listed on the New York Stock Exchange market. Extracts from its current statement of financial position are as follows: $’m $’m Equity Ordinary shares (K1 nominal) 15 Reserves 153 168 Non-current liabilities 8% Irredeemable loan notes 10 6% Loan notes 12 22 190 Weaver Plus is planning on expansion of its existing business line and locations costing $10 million in the near future and is assessing its current financial position as part of preparing a business case in support of seeking new finance. The business expansion is expected to increase the profit before interest and tax of Weaver Plus by 20% in the first year. The planned business expansion by Weaver Plus has already been announced to the stock market. Information on the expected increase in profit before interest and tax has not yet been announced and the company has not decided on how the expansion is to be…Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…Solar 123 Limited (SL) is operating in the Boom energy sector. The company recognized that to stay competitive it must Implement projects which would reduce the cost of the products. SL's board of directors approved the recommendation Finance the project by issuing new debt. On January 1, 2019, SL issued new bonds which will mature on December 31, 2038. The bonds have a par value of $1,000 and a coupon rate of 13%. Coupon payments are made semi-annually. i) What would the value of the bonds on December 31, 2021, if the interest rates had risen to 18%? based on the price of the bon, how would you classify the bond" ii)What woul dbe the value on June 30, 2027, if interest rates had fallen to 10%? Based on the price of the bond, how would you classify the bond? iii) If the bonds had a value of $1,080 on June 13, 2027, what would be their yield to maturity on that date?
