Shares repurchase and the previous problem? Suppose the company had. Announce is going to repurchase $21,850 worth of stock instead of repairing a dividend. What effects would the transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share before the repurchase? Ignoring tax effects, shows how the share repurchase is affectively the same as a cash dividend.

Shares repurchase and the previous problem? Suppose the company had. Announce is going to repurchase $21,850 worth of stock instead of repairing a dividend. What effects would the transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share before the repurchase? Ignoring tax effects, shows how the share repurchase is affectively the same as a cash dividend.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 5MC: Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its...

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A firm is planning to borrow money to make an equity repurchase to increase its stock price. It is basing its analysis on the fact that there will be fewer shares outstanding after the repurchases, and higher earnings per share. There are no taxes. a. Will earnings per share always increase after such an action? Explain.b. Will the higher earnings per share always translate into a higher stock price? Explain.c. Under what conditions will such a transaction lead to a higher price?
The bird-in-hand theory would predict that the companies could decrease their cost of equity financing by raising their dividend payout. True or false?
Which of the following statements is correct? a. Companies may pay too high a price in a large open market repurchase if it takes too long to complete. b. If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase. c. An investor's capital gains from selling stock in a repurchase are always taxed at a higher rate than if the distribution were dividends. d. The tax code encourages companies to pay dividends rather than reinvest earnings. e. The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.
Use B&M’s data and the free cash flow valuation model to answer the following questions: What is its estimated value of operations? What is its estimated total corporate value? (This is the entity value.) What is its estimated intrinsic value of equity? What is its estimated intrinsic stock price per share?
Taggart Technologies is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate Taggart pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The times-interest-earned ratio will decrease. b. Net income will decrease. c. Taxable income will decline. d. The ROA will decline. e. The tax bill will increase.
We are to choose the dividend payment policy in the company in such a way as to maintain the current market value (price) of the company. There are two dividend payment models to choose from: fixed dividend and the Gordon model. Please indicate how much (in percentage points) should the nearest fixed dividend be higher than the nearest dividend paid according to the Gordon model, if we assume that the increase in profits of the company (to be distributed among shareholders) will be at the level of 1.5% each year and we assume that the discount rate in this market will be 7%. Calculate the fixed dividend if the nearest dividend according to the Gordon model is 10 PLN. В I
1. What are the company motives for declaring dividends or stock repurchase programs? 2. How would you argue for a significant increase in both dividends and repurchases instead of using the available cash to make investments, i.e. M&A? 3. Would the tax treatment of dividend income versus capital gains income affect the managers’ decisions to disburse cash via dividends versus stock repurchases?
Which of the following statements is not true? O A cash sale of used machinery and equipment at its net book value (no gain or loss) will neither increase nor decrease the equity multiplier ratio. O Taking out a bank loan and using the funds to purchase new machinery and equipment will increase the book value per share. O Taking out a bank loan and using the funds to buy back some outstanding shares of common stock will increase the return on equity ratio. O Issuing new shares of common stock in exchange for cash will decrease the debt-to-equity ratio. O Using cash to pay off a bank loan will increase total asset turnover.
FAMA is considering issuing new common stock and using the proceeds to reduce its outstanding debt. The stock issue would have no effect on total assets, the interest rate FAMA pays, EBIT, or the tax rate. Which of the following is likely to occur if the company goes ahead with the stock issue? a. The times interest earned ratio will decrease. b. The ROA will decline. c. Taxable income will decrease. d. The tax bill will increase. e. Net income will decrease. Please explain answer.
Which of the following is one of the causes of over capitalization? a. Reduction in the market price of shares. b. Buying of shares in the unleveraged firm. c. Borrowing huge amount at higher rate than rate at which company can earn. d. Reduction in the rate of dividend and interest payments
If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm’s decision to pay more dividends rather than to retain and reinvest more of its earnings?
Which statement is true? O A. Financial statements reflect economic costs. O B. Year-over-year decreases in liabilities are sources of cash. O C. A stock with a beta of 1.00 has the total risk of the market portfolio. O D. Shareholders have the prior claim to the cash flows of a corporation. O E. None of the above are true.