edErna Corporation is evaluating an extra dividend versus a share repurchase. In eithercase, $53,500 would be spent. Current earnings are $1.79 per share, and the stockcurrently sells for $64 per share. There are 9,000 shares outstanding. Ignore taxes andother imperfections.a. Evaluate the two alternatives in terms of the effect on the price per share of the stockand shareholder wealth per share. (Do not round intermediate calculations andround your answers to 2 decimal places, e.g., 32.16.)b. What will the company's EPS and PE ratio be under the two different scenarios? (Donot round intermediate calculations and round your answers to 2 decimal places,e.g., 32.16.)

b. Calculating the EPS (earnings per share) and PE (price-to-earnings) ratio is essential for…

Answered: ed Erna Corporation is evaluating an…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase.
#2: XYZ Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,500 would be spent. Current earnings are $1.65 per share, and the stock currently sells for $58 per share. There are 2,000 shares outstanding. a) Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. b) What will the company's EPS and P/E ratio be under the two different scenarios?
D6) Finance the stock of apsara ltd is currently trading at a price of 500 another stock reynolds ( with similar cost of equity i .e., 20%) is trading at 400 per share. If the current divident per share paid by both reynolds and apsara is the same, then what would be the reasons behind the diffrence in stock prices of both these companies. explain your answer with adequate rationale
(b) The company is also considering offering additional common shares in the market. However Insignia is concerned about whether its stock is fairly valued on the market. As such, its Finance Manager has undertaken an exercise to determine the current price of its common shares based on the following anticipated dividend payout structure: V Insignia's last dividend paid was $4.20. V The company intends to increase the dividend by 10%, 15% and 20% respectively over the next three (3) years. V Thereafter, the company is expected to increase dividends by an annual rate of 2%. The company continues to assume a required return of 12%. Required: Given the above, what should be the current price of Insignia's common shares?
Honeycutt Co. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 15,000 shares of stock outstanding. Ignore taxes for this problem. a. What is the price per share of equity under Plan I? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the price per share of equity under Plan II? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Price per share b. Price per share
Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.92 million in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes. a. Use MM Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? ((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.) a. Share price b. All equity plan Levered plan
c) Calculate the cost of ordinary shares for each capital structure.
JPix management is considering a stock split. JPix currently sells for$120 per share and a 3-for-2 stock split is contemplated. What will be thecompany’s stock price following the stock split, assuming that the split hasno effect on the total market value of JPix’s equity?
Foundation Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $1.47 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. Use MM Proposition to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (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.) a. Share price b. All-equity plan b. Levered plan $ 71.43
Kolby Corp. is comparing two different capital structures. Plan I would result in 900 shares of stock and $65,700 in debt. Plan II would result in 1,900 shares of stock and $29,200 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $8,500. An all-equity plan would result in 2,700 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan II?
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
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