None Analysts expect ElectroSoft to generate $99.6 million of free cash flow at the end of the current year. (Assume that cash flows occuron December 31 and today is January 1.) Analysts expect Electrosoft's cash flow to grow at 3% in perpetuity. Electrosoft has no debtand its shareholders require a return of 12%. There are 151.59817 million shares outstanding, and the shares trade for $7.30.ElectroSoft has announced a stock repurchase. It intends to buy 60 million shares at a price of $8 per share. The repurchase will bedebt financed. After the repurchase, the company's debt-to-equity ratio will be 2/3 and it will maintain that ratio in perpetuity. The costof debt is 5% and the tax rate is 35%. Answer the following questions.Part 1What is the levered cost of equity after the repurchase? (Express your answer in percentage form rounded to one decimal place.)Cost of equityCheck AnswerPart 2What is the company's WACC after the repurchase? (Express your answer in percentage form rounded to one decimal place.)WACC =Check Answer

ElectroSoft Capital Structure AnalysisPart 1: Levered Cost of Equity (LCOE) after RepurchaseStep 1:…

Answered: Analysts expect ElectroSoft to generate…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Natsam Corporation has $25 million of excess cash. The firm has no debt and 20 million shares outstanding. The operating assets are expected to generate free cash flows of 18 million per year starting from next year till infinity. Its asset cost of capital is 10%. Natsam's board has decided to pay out all this cash as a one-time dividend three days later. (a) What is the current stock price (i.e., the cum-dividend price)? (b) What is the ex-dividend price in a perfect capital market? (c) If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? (d) In a perfect capital market, which policy do investors in the firm prefer?
Analysts expect the Cornhusk Bank to generate $99.825 million of free cash flow at the end of the current year. (Assume that cash flows occur on December 31 and today is January 1.) Analysts expect Cornhusk's cash flow to grow at 3% in perpetuity. Cornhusk has no debt and its shareholders require a return of 11%. There are 199.96995 million shares outstanding which trade for $6.24. The CFO of Cornhusk wants to borrow and use the borrowed funds to repurchase shares. The company will borrow enough funds such that its debt-to-value ratio is 25% and it plans to maintain that ratio in perpetuity. (D/E = 1/3.) The cost of debt is 5% and the tax rate is 40%. What stock price should the company offer for %3D repurchased shares such that the post-repurchase stock price is equal to the repurchase price? $6.46 $6.56 $6.76 $6.66
Analysts expect ElectroSoft to generate $99.65141 million of free cash flow at the end of the current year. (Assume that cash flows occur on December 31 and today is January 1.) Analysts expect Electrosoft's cash flow to grow at 3% in perpetuity. Electrosoft has no debt and its shareholders require a return of 11%. There are 153.78293 million shares outstanding, and the shares trade for $8.10. ElectroSoft has announced a stock repurchase. It intends to buy 36.6 million shares at a price of $9 per share. The repurchase will be debt financed. After the repurchase, the company's debt-to-equity ratio will be 1/3 and it will maintain that ratio in perpetuity. The cost of debt is 5% and the tax rate is 35%. Answer the following questions. Part 1 What is the levered cost of equity after the repurchase? (Express your answer in percentage form rounded to one decimal place.) Cost of equity= Part 2 What is the company's WACC after the repurchase? (Express your answer in percentage form rounded to…
Analysts forecast Power Puff to generate $110 million of free cash flow at the end of the current year. (Assume that cash flows occur on December 31 and today is January 1.) Analysts also expect Power Puff's cash flow to grow at 2% in perpetuity. Power Puff has no debt and its shareholders require a return of 11.5%. There are 175 million shares outstanding and the shares trade for $6.62. Power Puff has announced a stock repurchase. It intends to buy shares at a price of $7 per share. The repurchase will be debt financed. Assume that Power Puff is aiming to maintain a debt to value ratio of 40%. The cost of debt is 5.25% and the tax rate is 30%. A) What is the Value of the Levered company? (Select from A, B, C) B) What will the stock price be after the repurchase? (Select from D, E, F) Select 2 correct answer(s) A) $1321 M B) $1240 M C) $1559 M D) $7.15 E) $6.91 F) $6.62
The analyst estimates that after three years the National Inc’s free cash flow will grow at a constant rate of 6% per year. The analyst estimates that the company’s WACC is 10%. The total market value of debt and preferred stock is P25,000 and there are 1,000 outstanding shares of common stock. What is the intrinsic value of the company’s common stock? a. P99.50 b. P84.34 c. P75.31 d. P112.22
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BH Corp's free cash flow to equity holders is expected to be $114 million for years 1-3 and is projected to grow at a rate of 2% afterwards. There are 20 million shares of equity outstanding. What is the predicted price of the stock if the cost of equity is 15%? Round your answer to two decimal places and enter it without the dollar sign.
An analyst is trying to estimate the intrinsic value of the stock of ATR Kim Eng. The analyst estimates that ATR Kim Eng’s free cash flow during the next year will be P25 million. The analyst also estimates that the company’s free cash flow will increase at a constant rate of 7% a year and that the company’s WACC is 10%. ATR Kim Eng has P200 million of long-term debt and preferred stock and 30 million outstanding shares of common stock. In the Philippine stock exchange, ATR Kim Eng's common stock is traded at P30.00. What can be said of the stock price's condition? a. undervalued/underpriced b. overvalued/overpriced c. oversold d. in equillibrium
Matchmaker Cards (MC) has $30 million in assets and EBIT equal to $3.5 million. If MC's debt ratio (DfTA) is 60 percent, the interest it pays on its debt is 11 percent and there will be 400,000 shares of stock outstanding, whereas if the debt ratio is 30 percent, interest is 7 percent and outstanding shares will equal 600,000.MC's marginaltax rate is 40 percent. Calculate MC's EPS and ROE for each capital structure (ROE = Net income/Equity). Which capital structure is better?
Venice Surf Co. expects to generate free cash flows over the next three years of $22 million, $31 million, and $42 million, respectively. In addition, the terminal value of all free cash flows expected to be generated after Year 3 is $436 million. The company's nonoperating assets equal $41 million and its nonoperating liabilities equal $185 million. There are 17 million shares outstanding. Estimate the value of each share of common stock using the free cash flow data provided, and assuming a weighted average cost of capital of 11%. Present your answer to two decimal places, e.g., $23.45. Add your answer
Gamma Industries has net income of $1,100,000, and it has 1,355,000 shares of common stock outstanding. The company's stock currently trades at $35 a share. Gamma is considering a plan in which it will use available cash to repurchase 30% of its shares in the open market at the current $35 stock price. The repurchase is expected to have no effect on net income or the company's P/E ratio. What will be its stock price following the stock repurchase? Do not round intermediate calculations. Round your answer to the nearest cent.
Beta Industries has net income of $2,000,000 and it has 1,000,000 shares of common stock outstanding. The company’s stock currently trades at $32 a share. Beta is considering a plan in which it will use available cash to repurchase 20% of its shares in the open market. The repurchase is expected to have no effect on either net income or the company’s P/E ratio. What will be its stock price following the stock repurchase?

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