Firm B has a net income of $2 million and has 1 million shares of common stocks outstanding. Firm B’s shares currently trade at $32 per share. The management is planning to use available cash to purchase 20% of Firm B’s shares in the open market. The repurchase is expected to have no effect on either net income or

Firm B has a net income of $2 million and has 1 million shares of common stocks outstanding. Firm B’s shares currently trade at $32 per share. The management is planning to use available cash to purchase 20% of Firm B’s shares in the open market. The repurchase is expected to have no effect on either net income or

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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Company B has a net incme $2million and has 1 million shares. the company is considering a plan to repurchased 20% of its shares in open market. share price is trading at $32 per share. Currently the repurchased is expected to have no effect on its net income and PE ratio. what will be the stock pricefollowing the stock repurchased?
Love Inc. believes that at its current share price of P16.00 the firm is undervalued. Makeover plans to repurchase 2.4 million of its 20 million shares outstanding. The Po Inc.’s managers expect that they can repurchase the entire 2.4 million shares at the expected equilibrium price after the repurchase. The Love Inc.’s current earnings are P44,000,000. What is the expected per share market price after repurcharse?
Blue Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1.11 per share and the stock currently sells for $42 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections. If Blue Corp. pays a dividend, what will be the dividend per share? After the dividend is paid, how many shares will be outstanding and what will the price per share be? Enter your answers rounded to 2 DECIMAL PLACES. NOTE: Fractional shares are possible (Ex. 0.49 shares) Dividend 2.2 ☑ Correct response: 2.2±0.01 Shares outstanding = 2500 Correct response: 2,500 Stock price = 39.8 Correct response: 39.8±0.01 Click "Verify" to proceed to the next part of the question. After the $2.2 dividend, the price falls to $39.8 per share. What are earnings per share (EPS) and the price earnings (P/E) ratio? Enter your answers rounded to 2 DECIMAL PLACES. EPS = Number P/E RatioNumber Click "Verify" to proceed to the next part of the…
An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
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You expect X-Co will pay a dividend of $76 million and repurchase $100 million of its common shares next year (Year 1) with both expected to grow 8% in Year 2 and 6% in Year 3. If you expect the company to be sold for $12 billion at the end of Year 3, and you have calculated the cost of equity to be 8.4%, what do you estimate the true value of the company’s net worth to be now? (First draw a timeline. Assume all cash flows are at the end of the year.)
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Maynard Steel plans to pay a dividend of $2.89 this year. The company has an expected earnings growth rate of 3.7% per year and an equity cost of capital of 10.9%. a. Assuming Maynard's dividend payout rate and expected growth rate remain constant, and Maynard does not issue or repurchase shares, estimate Maynard's share price. b. Suppose Maynard decides to pay a dividend of $0.98 this year and use the remaining $1.91 per share to repurchase shares. If Maynard's total payout rate remainsconstant, estimate Maynard's share price. c. If Maynard maintains the same split between divdends and repurchases, and the same payout rate, as in part (b), at what rate are Maynard's dividends, earnings pershare, and share price expected to grow in the future? Note: The share price is expected to also grow at the same rate as dividends and earnings per share.