17. Goodell Media is a publicly traded firm with 80 million shares outstanding, trading at $ 10/share, and $ 200 million in debt outstanding. Goodell is considering borrowing $440 million and buying back shares at $11/share; the cost of capital will drop from 8.25% to 8% as a consequence. Assuming no growth in perpetuity, estimate the value per share for the remaining shares, after the buyback.

17. Goodell Media is a publicly traded firm with 80 million shares outstanding, trading at $ 10/share, and $ 200 million in debt outstanding. Goodell is considering borrowing $440 million and buying back shares at $11/share; the cost of capital will drop from 8.25% to 8% as a consequence. Assuming no growth in perpetuity, estimate the value per share for the remaining shares, after the buyback.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Scarab Technologies is expected to generate $175 million in free cash flow next year, and FCF is expected to grow at a constant rate of 7% per year indefinitely. Scarab has no debt or preferred stock, and its WACC is 10%. If Scarab has 45 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. How much is each share of common stock is worth dollars, according to the corporate valuation model?
An all-equity firm has expected earnings of $14,200 and a market value of $82,271. The firm is planning to issue $15,000 of debt at 6.3 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?
9
Bloom Company Limited expects its EBIT to be $80,000 every year forever. The firm canborrow at 9 percent. The firm currently has no debt, and its cost of equity is 13 percent. Thetax rate is 35 percent. The firm will borrow $100,000 and use the proceeds to repurchase shares. You are required to answer the following:(a) What is the value of the unlevered firm? (b) What will be the value of firm after recapitalization? (c) What is the value of equity in the recapitalized firm? (d) What is the Weighted Cost of Capital of the levered firm?
Antiques R Us is a mature manufacturing firm. The company just paid a dividend of $11.00, but management expects to reduce the payout by 4.75 percent per year, indefinitely. If you require a return of 10 percent on this stock, what will you pay for a share today? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Share price
NHL Inc.’s current return on equity (ROE) is 20%, its current book equity per share is $50, and it pays out half of its earnings as dividends. Both the ROE and payout ratio will stay constant for the next two years. After year 2, competition will force ROE down to 8%, and NHL will increase its payout ratio to 75%. The cost of capital is 10%. What is NHL’s stock price today?
11. Last year Gathas, Inc. had P50 million in total assets. Management desires to increase its plant and equipment during the coming year by P12 million. The company plans to finance 40% of the expansion with debt and the remaining 60% with equity capital. Bond financing will be at 9% coupon rate and will be sold at par value. Common stock is currently selling at P50 per share, and flotation costs for new common will amount to P5 per share. The expected dividend next year for Gathas is P2.50. Furthermore, dividends are expected to grow at 6% rate far into the future. Corporate tax is 25%. Internal funding available from additions to retained earnings is P4 million. a. What amount of new common stock must be sold if the existing capital structure is to be maintained? b. Calculate the weighted average cost of capital at an investment level of P12 million, assuming amount of retained earnings will not be used
ABC is an unlevered firm with EBIT of $12,257 per year forever. Its unlevered cost of equity is 11%. It plans to borrow $36,348 perpetual debt at 6% to buy back shares. If the corporate tax is 26%, what is the firm value after the recapitalization?
National Company expects P30,000,00 in earnings next year. Its dividend payout ratio is 40%, and its equity to asset ratio is 40%. National Company uses no preferred stock. At what amount of financing will there be a break point in National Company’s cost of capital?
11
Scampini Technologies is expected to generate $100 million in free cash flow next year, and FCF is expected to grow at a constant rate of 6% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 11%. If Scampini has 50 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. Each share of common stock is worth $ , according to the corporate valuation model.
Covan, Inc. is expected to have the following free cash flow: a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $ (Round to the nearest cent.) A b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cont.) c. Assume you bought Covan stock at the beginning of…

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