Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 13, Problem 21QAP
a
Summary Introduction
Adequate information:
Market value of debt
Cost of debt
Market value of equity
Debt value
Projected EBIT in one year
EBIT growth rate for first 5 years
EBIT perpetuity growth rate
Net working capital percentage for EBIT
Capital spending percentage for EBIT
Depreciation for EBIT
Shares outstanding
Tax rate
To compute: Stock price for the company J.
Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.
b
Summary Introduction
Adequate information:
Market value of debt
Cost of debt
Market value of equity
Cost of equity
Debt value
Projected EBIT in one year
EBIT growth rate for first 5 years
EBIT perpetuity growth rate
Net working capital percentage for EBIT
Capital spending percentage for EBIT
Depreciation for EBIT
Shares outstanding
Tax rate
EV/EBITDA = 9
To compute: Stock price
Introduction: The term Share price refers to the valuation of the stock based on factor considerations such as total debt, enterprise value, shares outstanding, etc.
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Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 6.8 percent. The company’s market capitalization is $260 million and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding and the tax rate for both companies is 25 percent. a.What is the maximum share price that Happy Times should be willing to pay for…
Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order
to establish an immediate presence in the area, the company is considering the
purchase of the privately held Joe's Party Supply. Happy Times currently has debt
outstanding with a market value of $150 million and a YTM of 4.9 percent. The
company's market capitalization is $390 million and the required return on equity is 10
percent. Joe's currently has debt outstanding with a market value of $31 million. The
EBIT for Joe's next year is projected to be $12 million. EBIT is expected to grow at 9
percent per year for the next five years before slowing to 2 percent in perpetuity. Net
working capital, capital spending, and depreciation as a percentage of EBIT are
expected to be 8 percent, 14 percent, and 7 percent, respectively. Joe's has 1.9 million
shares outstanding and the tax rate for both companies is 21 percent.
a. What is the maximum share price that Happy Times should be willing to pay for…
Happy Times, Incorporated, wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe's Party Supply. Happy Times currently has debt outstanding with a market value of $220 million and a YTM of 5.8 percent. The company's market capitalization is $460 million and the required return on equity is 12 percent. Joe's currently has debt outstanding with a market value of $34.5 million. The EBIT for Joe's next year is projected to be $14 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe's has 2.25 million shares outstanding and the tax rate for both companies is 23 percent. a. What is the maximum share price that Happy Times should be willing to pay for…
Chapter 13 Solutions
Corporate Finance
Ch. 13 - Project Risk If you can borrow all the money you...Ch. 13 - WACC and Taxes Why do we use an aftertax figure...Ch. 13 - SML Cost or Equity Estimation If you use the stock...Ch. 13 - SML Cost or Equity Estimation What are the...Ch. 13 - Prob. 5CQCh. 13 - Cost of Capital Suppose Tom OBedlam, president of...Ch. 13 - Company Risk versus Project Risk Both Dow Chemical...Ch. 13 - Prob. 8CQCh. 13 - Leverage Consider a levered firms projects that...Ch. 13 - Beta What factors determine the beta of a stock?...
Ch. 13 - Prob. 1QAPCh. 13 - Prob. 2QAPCh. 13 - Prob. 3QAPCh. 13 - Prob. 4QAPCh. 13 - Prob. 5QAPCh. 13 - Prob. 6QAPCh. 13 - Prob. 7QAPCh. 13 - Prob. 8QAPCh. 13 - Prob. 9QAPCh. 13 - Prob. 10QAPCh. 13 - Prob. 11QAPCh. 13 - Prob. 12QAPCh. 13 - Prob. 13QAPCh. 13 - Prob. 14QAPCh. 13 - Prob. 15QAPCh. 13 - Prob. 16QAPCh. 13 - Prob. 17QAPCh. 13 - Prob. 18QAPCh. 13 - Prob. 19QAPCh. 13 - Prob. 20QAPCh. 13 - Prob. 21QAPCh. 13 - Prob. 22QAPCh. 13 - Prob. 23QAPCh. 13 - Prob. 24QAPCh. 13 - Prob. 1MCCh. 13 - Prob. 2MCCh. 13 - Go to www.reuters.com and find the list of...Ch. 13 - You now need to calculate the cost of debt for...Ch. 13 - You now have all the necessary information to...Ch. 13 - You used Tesla as a representative company to...
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