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H3.
An unlevered firm with 300,000 shares outstanding has net income of $625,000. The firm’s stock sells for $9.50 per share and the book value per share is $12.00. The firm is considering an investment that is expected to cost $1 million and increase net income by $125,000. The cost of the investment will be financed with the issue of new shares. Assume the firm’s price-earnings ratio will remain constant. Does accounting dilution and/or market value dilution take place? Why?
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- Suppose instead that the company is about to pay a dividend of $2.00 per share. You also learn that the company is expected to have net income of $100 million, dividends of $50 million, and total equity of $1.5 billion (and that these relationships are expected to be stable). If the relevant required rate of return is 10%, what is the intrinsic value per share of the company’s stock?A company’s common stock is currently selling at $40 per share. Its most recent dividend was $1.60, and the financial community expects that its dividend will grow at 10% per year in the foreseeable future. What is the company’s equity cost of retained earnings? If the company sells new common stock to finance new projects and most pay $2 per share in flotation costs, what is the cost of equity? Be sure to include your work for all calculations.The ABC Corporation expects next year’s net income to be Taka 20 million. The firm’s debt ratio is currently 40%. It has Taka 15 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei’s dividend payout ratio be next year? Provide your opinions on the following concepts: Dividend irrelevance theory; signaling theory, and clientele effect.
- Start - Up Industries is a new firm that has raised $210 million by selling shares of stock. Management plans to earn a 20% rate of return on equity, which is more than the 15% rate of return available on comparable - risk investments. Half of all earnings will be reinvested in the firm. What will be Start - Up's ratio of market value to book value? Note: Do not round intermediate calculations. What will be Start - Up's ratio of market value to book value if the firm can earn only a rate of return of 10% on its investments? Note: Do not round intermediate calculations. Round your answer to 1 decimal place.Bridgette Inc. has forecasted that its net income will be P400,000. The company has debt ratio of 30%. The dividend policy of the firm follows the residual dividend model. Bridgette Inc. has an investment project amounting to P500,000. The number of issued and outstanding shares is 4,000. 1. What is the dividends per share of Bridgette Inc.?Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company's outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is S0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $17.00 per share, the flotation cost for selling new shares is F 10%, and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget? Please provide each step and why, and how to get to the next step
- Management of ABC Co. is attempting to estimate the company’s cost of equity capital. IF the company has a constant growth rate of 5%, a forecasted dividend of P2.11, a share price of P23.12 and is subject to 30% income tax, what is the estimated cost of ordinary equity?Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%, its tax rate is 40%, the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $16.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget? (Hint: required return on stock needs to be adjusted by flotation cost re = D1/(P0 × (1 - F)) + g) Group of answer choices 8.58% 7.80% 9.61% 9.45% 7.88%A firm has determined its optimal capital structure which is composed of the following sources. Preferred Stock:The firm has determined it can issue preferred stock at RM75 per share par value. The stock will pay a RM10 annual dividend. The cost of issuing and selling the stock is RM3 per share. Common Stock:The firm’s common stock is currently selling for RM18 per share. The dividend expected to be paid at the end of the coming year is RM1.74. Its dividend payments have been growing at a constant rate of 3% for the last four years. It is expected that to sell, a new common stock issue must be underpriced, with floatation costs of RM1 per share. Based on the above information, what is the firm’s cost of preferred stock and cost of a new issue of common stock? Which of the two sources offers a lower cost? Show your workings.
- Assume that you are on the financial staff of Vanderheiden Inc., and you have collected the following data: The yield on the company’s outstanding bonds is 7.75%, its tax rate is 25%, the next expected dividend is $0.65 a share, the dividend is expected to grow at a constant rate of 6.00% a year, the price of the stock is $14.00 per share, the flotation cost for selling new shares is F = 10%, and the target capital structure is 45% debt and 55% common equity. What is the firm's WACC, assuming it must issue new stock to finance its capital budget? 9.96% 7.98% 10.12% 8.75% 8.23%John Adam, an analyst with T.D. Wyse Securities, is trying to evaluate Company A’s target stock price per share. Free cash flow (FCF) estimates for the next 3 years are -$2, $12, and $18 million, after which the FCF is expected to grow at 4%. The overall firm cost of capital is 10%. The firm has $40 million in debt and has 16 million shares of stock. What is the estimated value per share? Show your calculations.Give typing answer with explanation and conclusion A financial analyst is calculating the theoretical value or target price that company A's share should have. Its share is currently trading at $100 usd in the market, it has 5 million shares outstanding. Total assets amount to $700 million. Total liabilities are 50% of assets and your debt is 40% of liabilities. It does not have minority capital and the balance in cash and short-term investments is $7 million. Asset turnover is 1.2x and the EBITDA margin is 20%. If the EV to EBITDA multiple of the sector where the company operates is with a median of 5x and an average of 7x. What should the share price be?