Bonanza Billiard Games is an all-equity firm with 50 million shares outstanding, which are currently trading at $22 per share. Last month, Bonanza announced that it will change its capital structure by issuing $300 million in debt. The $200 million raised by this issue, plus another $200 million in cash that Bonanza already has, will be used to repurchase existing shares of stock. Assume that capital markets are perfect. •    What is the market capitalization of the company before the transaction takes place? •    What is the market capitalization of the company after the transaction takes place?

You have been asked to estimate the cost of capital for ABC Corporation. The companyhas 10 million shares and 200,000 bonds outstanding at par value $15,000. In addition, it has$500 million in short-term debt from bank. The target capital structure ratio is 70 percentequity, 20 percent long-term debt, and 10 percent short-term debt.The current capital structure has temporarily moved slightly away from the target ratio. Thecompany’s shares currently trade at $50 with a beta of 1.30. The book value of the shares is$45. The annual coupon rate of the bonds is 10 percent, they trade at 105 percent of par, andthey will mature in seven years. Interest on the short-term debt is 10 percent. The currentyield on ten-year government bonds is 7 percent. The market risk is 15 percent. The corporatetax rate applicable is expected to be 25 percent. What would be the appropriate cost of capital for the ABC Corporation? Explain!

Kinston Enterprises has a debt obligation of $47 million that is due now. The market value of Kinston's assets is $102 million, and the firm has no other liabilities. Assume that capital markets are perfect and that Kinston has 5 million shares outstanding. If Kinston decides to sell new shares to raise capital to pay its debt obligation, how many shares will be issued?   5.0 million   4.3 million   4.7 million   4.0 million

Suppose Beta Industries and Delta Technology have identical assets that generate identical cash flows. Beta Industries is an all-equity firm, with 7 million shares outstanding that trade for a price of $16.00 per share. Delta Technology has 22 million shares outstanding, as well as debt of $33.60 million. a. According to MM Proposition I, what is the stock price for Delta Technology? b. Suppose Delta Technology stock currently trades for $8.27 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity? a. According to MM Proposition I, what is the stock price for Delta Technology? According to MM Proposition I, the stock price per share for Delta Technology is $ (Round to the nearest cent.)

Little Oil has outstanding 1 million shares with a total market value of $29 million. The firm is expected to pay $1.00 million of dividends next year, and thereafter, the amount paid out is expected to grow by 5% a year in perpetuity. Thus, the expected dividend is $1.05 million in year 2, $1.1025 million in year 3, and so on. However, the company has heard that the value of a share depends on the flow of dividends, and therefore, it announces that next year's dividend will be increased to $2 million and that the extra cash will be raised immediately afterward by an issue of shares. After that, the total amount paid out each year will be as previously forecasted, that is, $1.05 million in year 2 and increasing by 5% in each subsequent year. A. At what price will the new shares be issued in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. B. How many shares will the firm need to issue? Note: Do not round intermediate calculations. Round your…

ABC Corporation has debt with a value of $100 million and common stock with a market value of $200 million .Investors expect  6% return on the debt and a a 15% return on the stock Assume perfect capital markets. Suppose ABC issues $100 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? Suppose instead ABC corporation issues $50 million of new debt to repurchase stock. what is the expected return of the stock after this transaction,If the risk of the debt does not change? Would the expected return of the stock be higher or lower than in part (i)? If the risk of the debt increases,