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BL Plastics is an all equity firm that has 27,000 shares of stock outstanding. The company has decided to borrow $46,080 to buy out the shares of a deceased stockholder who holds 600 shares. What is the total value of this firm if you ignore taxes?
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- Rally inc, is an all equity firm with assets worth $25B and 10B shares outstanding. Rally plans to borrow $10B and use funds to repurchase shares. Rally’s corporate tax rate is 35% and Rally plans to keep its outstanding debt equal to $10B permanently. What is the lowest price Rally can offer and have shareholders tender their shares?FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 7,000 shares outstanding and the price per share is $44. EBIT is expected to remain at $30,100 per year forever. The interest rate on new debt is 9 percent, and there are no taxes. a. Melanie, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Melanie's cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Melanie unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round…Given that Local Care, Inc.'s stock is currently selling for $65 a share, calculate the amount of money that Elijah Pearson will make (or lose) on each of the following transactions. Assume that all transactions involve 100 shares of stock, and ignore brokerage commissions. Input all answers as positive values. He short-sells the stock and then repurchases the borrowed shares at $85.Total of $ . He buys the stock and then sells it some time later at $85.Total of $ . He short-sells the stock and then repurchases the borrowed shares at $50.Total of $ .
- Fill the blanks. Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The company’s stock currently is valued at $42.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of $33.60 per share. Larry worries about the value of his investment. Larry’s current investment in the company is $84,000. If the company issues new shares and Larry makes no additional purchase, Larry’s investment will be worth ______________. This scenario is an example of dilution. Larry could be protected if the firm’s corporate charter includes a preemptive right provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become ______________.Paradise Travels is an all-equity firm that has 9,000 shares of stock outstanding at a market price of $27 a share. Management has decided to issue $25,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.3 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.Lancaster Corporation, an investment banking company, often has extra cash to invest. Suppose Lancaster buys500 shares of Knight Corporation stock at $40 per share, representing less than 5% of Knight’soutstanding stock. Lancaster expects to hold the Knight stock for one month and then sell it.The purchase occurs on December 15, 2018. On December 31, the market price of one share ofKnight stock is $47 per share.Requirements1. What type of investment is this for Lancaster? Give the reason for your answer.2. Record Lancaster’s purchase of the Knight stock on December 15 and the adjustment tomarket value on December 31.3. Show how Lancaster would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018
- Black Co. and White Co. are identical firms in all respects except for their capital structure. Black is all equity financed with $800,000 in stock. White uses both stock and perpetual debt; its stock is worth $400,000 and the interest rate on its debt is 10 percent. Both firms expect EBIT to be $95,000. Ignore taxes.Required:1. Ali owns $30,000 worth of White’s stock. What rate of return is he expecting?2. Show how Ali could generate exactly the same cash flows and rate of return by investing in Black and using homemade leverage.3. What is the cost of equity for Black? What is it for White?4. What is the WACC for Black? For White? What principle have you illustrated?FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 14,000 shares outstanding and the price per share is $63. EBIT is expected to remain at $77,000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. a. Ms. Brown, a shareholder of the firm, owns 250 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Ms. Brown’s cash flow be under the proposed capital structure of the firm? Assume that she keeps all 250 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Ms. Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do…ABC co and XYZ Co. are identical firms in all respects except for their capital structure. ABC is all equity financed with $780,000 in stock. XYZ uses both stock and perpetual debt; its stock is worth $390,000 and the interest rate on its debt is 8 percent. Both firms expect EBIT to be $87,000. Ignore taxes. (SHOW YOUR WORK) What is the cost of equity for ABC? What is it for XYZ? What is the WACC for ABC? For XYZ? What principle have you illustrated?
- Bob invested 3,000 and borrowed 3,000 to purchase shares in Verizon communications. At the time of his investment Verizon was selling for 47 a share. If bob paid a 30 commission how many shares could he buy if he used only his own money and did not use margin?Good Values, Inc., is all-equity-financed. The total market value of the firm currently is $100,000, and there are 2,000 shares outstanding. The firm has declared a $5 per share dividend. Now suppose that instead of paying a dividend Good Values plans to repurchase $10,000 worth of stock. Ignore taxes. a. What will be the stock price before and after the repurchase? b. Suppose an investor who holds 200 shares sells 20 of her shares back to the firm. If there are no taxes on dividends or capital gains, show that she should be indifferent between the repurchase and the dividend. c. Show that if dividends are taxed at 30% and capital gains are not taxed, the value of the firm is higher if it pursues the share repurchase instead of the dividend.Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid?