EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 15, Problem 12P
a.
Summary Introduction
To determine: The choice of a dividend payment or share repurchase plan have on the wealth position of the firms shareholder.
b.
Summary Introduction
To determine: The most shareholders are in a very high marginal tax bracket , in that which alternative is favoured.
c.
Summary Introduction
To determine: The limitations on the repurchase alternative as an element of the firms dividend policy.
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Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and the impact of both decisions on the firm. Just Right plans to spend $85,000 in respect of both scenarios. Just Right’s current earnings are $2.10 per share, and the stock currently sells for $45 per share. Just Right currently has 5,000 shares outstanding.You own one share of stock in this company.If the company issues the dividend, what will your total investment be worth?
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Ignatius Industries is considering going public but is still determining a fair offering price for the company. Before hiring an investment banker to assist in making the public offering, managers at Ignatius have decided to make their own estimate of the firm’s common stock value. The firm’s CFO has gathered data for valuating using the free cash flow valuation model.
The firm’s weighted average cost of capital is 12%, and it has $1,500,000 of debt at market value and $550,000 of preferred stock at its assumed market value. The estimated free cash flows over the next 5 year, 2024 through 2028, are given below. Beyond 2028 to infinity, the firm expects its free cash flow to grow by 3% annually.
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2027
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Estimate the value of Ignatius Industries’ entire company by using the free cash flow valuation model.
Use your finding in part a, along with the data provided…
Chapter 15 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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