Cross Road Realty is an all-equity firm with 50,000 shares of stock outstanding and a total market value of $744,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $126,560 if the economy is normal, $74,000 if the economy is in a recession, and $156,000 if the economy booms. Ignore taxes. Management is considering issuing $200,000 of debt at a coupon rate of 6.5 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession? (Round the number of shares repurchased down to the nearest whole share)
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- Northern Wood Products is an all-equity firm with 20,700 shares of stock outstanding and a total market value of $365,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $32,500 if the economy is normal, $19,200 if the economy is in a recession, and $45,800 if the economy booms. Ignore taxes. Management is considering issuing $91,900 of debt with an interest rate of 7 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession?Northern Wood Products is an all-equity firm with 21,900 shares of stock outstanding and a total market value of $368,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $34,000 if the economy is normal, $20,400 if the economy is in a recession, and $47,600 if the economy booms. Ignore taxes. Management is considering issuing $92,800 of debt with an interest rate of 6 percent. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession? Multiple Choice $.68 $1.74 $.91 $1.24Ornaments, Inc., is an all-equity firm with a total market value of $652,000 and 31,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $93,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 40 percent. What is the EPS in a recession? $1.77 $2.30 $1.24 $1.41 $2.12
- Ornaments, Incorporated, is an all-equity firm with a total market value of $542,000 and 20,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $76,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 21 percent. What is the EPS in a recession?Northern Wood Products is an all-equity firm with 16,000 shares of stock outstanding and a total market value of $352,000. Based on its current capital structure, the firm is expected to have earnings before interest and taxes of $26,000 if the economy is normal, $3,000 if the economy is in recession, and $33,000 if the economy booms. Ignore taxes. Management is considering issuing $88,000 of debt with a 6 percent coupon rate. If the firm issues the debt, the proceeds will be used to repurchase stock. What will the earnings per share be if the debt is issued and the economy is in a recession? A=-$0.19 B=-$0.27 C=$0.03 D=$0.26 E=$0.31Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…
- Ornaments, Inc., is an all-equity firm with a total market value of $608,000 and 26,200 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $88,850 if the economy is normal. If there is a recession, EBIT will be 24 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 35 percent. What is the EPS in a recession? Round to two places past the decimal point and format as "X.XX"Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 38% of the company’s present value, and you believe that at this capital structure the company’s debt holders will demand a return of 8% and stockholders will require 11%. The company is forecasting that next year’s operating cash flow (depreciation plus profit after tax at 21%) will be $76 million and that investment in plant and net working capital will be $38 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. a. What is the total value of Icarus? b. What is the value of the company’s equity? (For all the requirements, do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.)Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…
- Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 32% of the company's present value, and you believe that at this capital structure the company's debtholders will demand a return of 6% and stockholders will require 13%. The company is forecasting that next year's operating cash flow (depreciation plus profit after tax at 21%) will be $70 million and that investment in plant and net working capital will be $32 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. a. What is the total value of Icarus? b. What is the value of the company's equity? Note: For all the requirements, do not round intermediate calculations. Enter your answers in dollars rounded to 2 decimal places. a. Total value b. Company's equity $ $ 826.36 562.08Icarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 31% of the company's present value, and you believe that at this capital structure the company's debt holders will demand a return of 5% and stockholders will require 12%. The company is forecasting that next year's operating cash flow (depreciation plus profit after tax at 21%) will be $69 million and that investment in plant and net working capital will be $31 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. a. What is the total value of Icarus? b. What is the value of the company's equity? (For all the requirements, do not round intermediate calculations. Enter your answers in millions rounded to 1 decimal place.) a. Total value million b. Company's equity millionIcarus Airlines is proposing to go public, and you have been given the task of estimating the value of its equity. Management plans to maintain debt at 30% of the company's present value, and you believe that at this capital structure the company's debtholders will demand a return of 6% and stockholders will require 11%. The company is forecasting that next year's operating cash flow (depreciation plus profit after tax at 21%) will be $68 million and that investment in plant and net working capital will be $30 million. Thereafter, operating cash flows and investment expenditures are forecast to grow in perpetuity by 4% a year. What is the total value of Icarus? What is the value of the company's equity?