Suppose that all capital gains are taxed at a 24% rate, and that the dividend tax rate is 48%. Arbuckle Corp. is currently trading for $31, and is about to pay a $4 special dividend. a. Absent any other trading frictions or news, what will its share price be just after the dividend is paid? Suppose Arbuckle made a surprise announcement that it would do a share repurchase rather than pay a special dividend. b. What net tax savings per share for an investor would result from this decision? c. What would happen to Arbuckle's stock price upon the announcement of this change?
Q: You are short 1000 shares of XYZ stock and you want to limit losses to the upside should the…
A: An Option is a derivative contract. It is a right but not the obligation to purchase or sell an…
Q: Explain the Criticisms of the Modigliani and Miller and traditional two theories on capital…
A: Capital structure is a systematic approach that is used by companies to finance business activities…
Q: DPWH is considering building a new expressway going to Bicol to cut the travel time of consumers…
A: Concept. 1. Present worth. ( PW) method. It is calculated by discounting present values of cash…
Q: According to the Markowitz Model, the optimal portfolio for an investor is at the point of tangency…
A: Please note that I'm required to answer only the first 3 questions as per the guidelines. An…
Q: AllCity, Inc., is financed 37% with debt, 11% with preferred stock, and 52% with common stock. Its…
A: Cost of preferred stock = DP0 Where, D is annual dividend per share P0 is current price of the stock…
Q: The function s(t) = 0.035 +0.0031 gives the effective annual rate of a zero coupon bond of maturity…
A: The bonds are normally debt securities that carry a fixed interest rate known as the coupon rate.…
Q: You have been asked to compare three alternative investments and make a recommendation. ¨• Project…
A: Concept. Net present value(NPV) is calculated by deducting initial investment from present value of…
Q: 6. Backroads Sporting Goods is trying to determine its optimal capital structure, which now consists…
A: Data given: Risk free rate=6% Market risk premium=5% Tax rate=40% Unlevered beta=1.25 Formula of…
Q: Jersey Jewel Mining has a beta coefficient of 1.1. Currently the risk-free rate is 2 percent and the…
A:
Q: Which of the below statements is FALSE? OA. A synergy gain occurs when a new product can be…
A: Several statements have been given. We have to find the one that's false. We will examine each…
Q: SIROM Scientific Solutions has £12 million of outstanding equity and £4 million of bank debt. The…
A: Solution: Given, Equity Capital = $12 Million Debt Capital = $4 Million Total Capital = $12 + $4 =…
Q: Given 8 = 0.05, find the present value of payments of 200 made at times 6, 9, ..., 21 (use a decimal…
A: Present value is the equivalent value of the future cash flows that are to be recieved in the future…
Q: You are considering two stocks and have determined the following information: Stock A The return on…
A: Solution: Given, Probability of Stock A (P) Return of Stock A(%) = RA E(RA) = RA*P [RA -…
Q: assume capital markers are perfect snd the modigiliani-miller theorier hold. mercury electronics is…
A: According to Modigliani-Miller approach to capital theory, the valuation of a firm is not dependent…
Q: Use the formula for continuous compounding to compute the balance in the account after 1, 5, and 20…
A:
Q: You lend a friend $800 and they agree to make quarterly payments for 1 year. You charge your friend…
A: Loans are paid by equal periodic payments and these payments carry the payment of interest and…
Q: CASE: Best Buy Pays Big Bucks for CEO Best Buy, the Richfield, Minnesota retailer awarded its new…
A: A periodic procedure mandated by the legislation known as "say on pay" allows shareholders of a…
Q: What would be the upper bound of the 95% confidence prediction interval for the following returns:…
A: Standard deviation refers to the square root of variance. It shows the dispersion of the average…
Q: Which of the following is a drawback of payback period method of investment appraisal? O it is cash…
A: Pay-back period:- It is the length of time required to recover the cost of the cash outflow. It is…
Q: Two different machines are under consideration for a reengineering project. Machine X is expected to…
A: Given Machine X Initial cost = $74,000 Expected life = 7years Fixed cost = $10,000per year…
Q: The company is setting aside funds to acquire a property for its new warehouse. The company needs…
A:
Q: Which retirement income strategy is most likely to result in fluctuating withdrawals OA. Constant…
A: Retirement income strategy refers to the management of fund that is maintained for the time of…
Q: rsey Medical earns $12.50 a share, sells for $100, and pays a so per share dividend. The stock is…
A: Company do the stock split to increase the number of shares and decrease the price of stock in the…
Q: Consider a two-factor APT. The expected return on the factor-1 portfolio is 8%. The expected return…
A: Answer Risk free rate = 4% Expected return on factor 1 = 8% Expected return on factor 2 = 10% Beta…
Q: AllCity, Inc., is financed 36% with debt, 8% with preferred stock, and 56% with common stock. Its…
A: The Weighted Average Cost of Capital (WACC) refers to the financial ratio that provides the overall…
Q: The payroll register of Seaside Architecture Company indicates $850 of social security and $215 of…
A: Payroll tax expense refers to a liability that is paid to the Federal or state government by the…
Q: What is the required return on an investment with a beta of 1.4 if the risk-free rate is 2.2 percent…
A: Formula:- Required return = Risk free rate + beta*(market rate- risk free rate)
Q: A retail coffee company is planning to open 110 new coffee outlets that are expected to generate…
A: Free cash flow per year is $15.9 million per year The growth rate is 3.5% WACC is 9.5% To Find: NPV…
Q: Tocor is considering the implementation of a lockbox collection system for its mid- western and…
A: The question is related to the Management of Receivables and Cash Management. The details are given…
Q: How to transfer this into excel using financial functions. : NPV = -4000 + 4000(P/F, i%, 48) +…
A: P/F functions means determining the present value when future value is provided. Here, i% is 1% and…
Q: You own a coal mining company and are considering opening a new mine. The mine will cost $115.8…
A: Internal rate of Return (IRR) is the rate at which the net present value NPV of the project is zero.…
Q: A $100 bond with annual coupons is redeemable at par at the end of 16 years. At a purchase price of…
A: Purchase price of a bond is the present value of all future cash flows from the bond. The future…
Q: Calculate the accrued interest (in $) and the total proceeds (in $) of the bond sale. (Round your…
A: Data given: Coupon rate=10.925% Formula to be used SI=P x R% x T Note: Assumed 360 days in a year
Q: company wanta to false $11.0 million by issuing 20-year zero coupon bonds. If the yield to maturity…
A: Zero coupon bonds are issued at a high discount and on maturity these bonds pay the face value.…
Q: You own 1,000 shares of a company, M&N Limited which is all-equity financed with 10,000 outstanding.…
A: In the case of the Modigliani-Miller theorem proposition 1, the value of unlevered and levered firms…
Q: has been the rtunity. A law i 10 tain ner ayment of $48,000. In return, for the next year the firm…
A: NPV and IRR are main methods of capital budegting based on the time value of money. Both are related…
Q: Suppose that the Tbill rate is 3% and the expected return on the market is 9.5%. Consider the…
A: Alpha is the difference between the actual return of the portfolio and the expected risk adjusted…
Q: Discuss the meaning of the term “relevant cash flow” in the context of investment appraisal, giving…
A: We have to explain the term "Relevant cash flows" and provide some examples.
Q: Von Bora Corporation (VBC) is expected to pay a £3.00 dividend at the end of this year. If you…
A:
Q: On December 6, the interest rate on a 1-year T-note was 4.73% and for the 2-year T-note was 4.34%.…
A: T-notes have tow components or determinants of interest rates, risk free rate ( comprising of…
Q: Which of the following does NOT form part of the objectives of a corporate governance best practice…
A: A set of norms, concepts, and procedures known as a corporate governance best practise framework can…
Q: 14. A project has estimated the following benefit possibilities for the year: Benefits ($)…
A:
Q: Zycad has sales of $110 million a year. If Zycad reduces their processing float by 3 days, what is…
A: The Average Cash balance is the amount is calculated with the help of following formula Average…
Q: Assume UK company JUP has debt with a book value of £24 million, trading at 120% of par value. The…
A: Market value of debt = $24 millions * 120% = $28.8 million Market value of equity = 20 millions *…
Q: Maren received 11 NQOs (each option gives her the right to purchase 11 shares of stock for $9 per…
A:
Q: ou retire at age 59 and decide to wait until age 70 to begin receiving Social Security payments.…
A: The concept of money's time value states that money has more worth currently as compared to the one…
Q: inty market line is estimated to be k=6% + (9.8 % -6%) B. considering two stocks. The beta of A is…
A: Risk based return on investment can be obtained from the capital assets price model based on risk…
Q: If a change in the investment environment leads to a decrease in the Risk-Free Rate while the Return…
A: As per Capital Asset Pricing Model the expected return is calculated with the help of following…
Q: A university's college of engineering would like to determine how much it will cost to keep its…
A:
Q: An individual has a portfolio that consists of 1) a three year zero coupon bond with a maturity…
A: Duration of a zero coupon bond is the term or tenure to maturity. Duration of a growth stock in…
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
- Hawar International is a shipping firm with a current share price of $4.94 and 9.8 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $8.7 million and repurchasing shares, that Hawar pays a corporate tax rate of 25%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will be the share price after this announcement? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? a. If the only imperfection is corporate taxes, what will be the share price after this announcement? The share price after this announcement will be $ per share. (Round to the nearest cent.) b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this…Hawar International is a shipping firm with a current share price of $5.05 and 10.4 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $9.5 million and repurchasing shares, that Hawar pays a corporate tax rate of 21%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will be the share price after this announcement? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $5.10 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt?Hawar International is a shipping firm with a current share price of $4.50 and 10 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $10 million and repurchasing shares. a. With perfect capital markets, what will the share price be after this announcement? b. Suppose that Hawar pays a corporate tax rate of 40%, and that shareholders expect the change in debt to be permanent. If the only imperfection is corporate taxes, what will the share price be after this announcement? c. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.55 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? Question content area bottom Part 1 a. With perfect capital markets, what will the share price be after this announcement? With perfect capital markets, the share price will be $enter your response here per share
- Blue Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $1.11 per share and the stock currently sells for $42 per share. There are 2,500 shares outstanding. Ignore taxes and other imperfections. If Blue Corp. pays a dividend, what will be the dividend per share? After the dividend is paid, how many shares will be outstanding and what will the price per share be? Enter your answers rounded to 2 DECIMAL PLACES. NOTE: Fractional shares are possible (Ex. 0.49 shares) Dividend 2.2 ☑ Correct response: 2.2±0.01 Shares outstanding = 2500 Correct response: 2,500 Stock price = 39.8 Correct response: 39.8±0.01 Click "Verify" to proceed to the next part of the question. After the $2.2 dividend, the price falls to $39.8 per share. What are earnings per share (EPS) and the price earnings (P/E) ratio? Enter your answers rounded to 2 DECIMAL PLACES. EPS = Number P/E RatioNumber Click "Verify" to proceed to the next part of the…Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million; it has $387.5 million in debt and zero preferred stock. As mentioned previously, IWT has 100 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.80 per share, and the stock currently sells for $75 per share. There are 2,800 shares outstanding. Ignore taxes and other imperfections. The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.
- 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.The Dunn Corporation is planning to pay dividends of $540000. There are 270000 shares outstanding, and earnings per share are $4. The stock should sell for $48 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,a. What should be the repurchase price? b. How many shares should be repurchased? c. What if the repurchase price is set below or above your suggested price in part a? d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock? a. 3/10, net 45 b. 3/15 net 30 c. 3/15 net 60 d.2/10 net 45Taco Time Corporation is evaluating an extra dividend versus a share repurchase. In either case, $22,960 would be spent. Current earnings are $3.80 per share, and the stock currently sells for $92 per share. There are 4,100 shares outstanding. Ignore taxes and other imperfections. What will the company’s EPS and PE ratio be under the two different scenarios?
- Plato Corporation’s board announces to pay $2 million excess cash to shareholders. At the announcement, the firm has no debt and 1 million shares outstanding with the market value of equity of $12 million. Assume that the markets are perfect. (i) What is the cum-dividend price? (ii) If the firm distributes the excess cash as a cash dividend, what is the exdividend price? Is the drop in share price the same as the cash dividend per share? Why? (iii) If the firm distributes the excess cash as a share repurchase, what will its share price once the shares are repurchased? (iv) If you hold 1,000 shares and the firm distributes the excess cash as a share repurchase in part (iii). How do you use homemade dividend to receive a cash dividend as in part (ii)?If iOS Corp. issues an additional $8 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 13.85%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. TE= Number Click "Verify" to proceed to the next part of the question.Ford Motor is evaluating an extra dividend versus a share repurchase. In either case $20,000 would be spent. Current earnings are $6.0 per share, and the stock currently sells for $40 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections in answering parts (a) and (b). Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth. a. b. What will be the effect on Ford Motor's EPS and PE ratio under the two different scenarios? C. In the real world, which of these actions would you recommend? Why? formulation: DPS= Tol Div (or excess cash) / No. of share [for unlevered firm] Share price = V/no. of share P ex-div = P - DPS EPS= Earnings (assume a constant) / no. of share P.E. = stock price/ EPS No. of share repurchase = Excess Cash / Stock Price