Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN: 9781337395083
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Textbook Question
Chapter 16, Problem 4P
Value of Equity after Recapitalization
Nichols Corporation’s value of operations is equal to $500 million after a recapitalization (the firm had no debt before the recap). It raised $200 million in new debt and used this to buy back stock. Nichols had no short-term investments before or after the recap. After the recap, Wd = 40%. What is S (the value of equity after the recap)?
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Value of Equity after
Recapitalization
Nichols Corporation's value of operations
is equal to $650 million after a
recapitalization (the firm had no debt
before the recap). It raised $260 million
in new debt and used this to buy back
stock. Nichols had no short-term
investments before or after the recap.
After the recap, wd = 40%. What is S
(the value of equity after the recap)?
Enter your answer in millions. For
example, an answer of $1 million should
be entered as 1, not 1,000,000. Round
your answer to the nearest whole
number.
$
million
Check My Work (10 remaining)
Edwards Construction currently has debt outstanding with a market value of $98,000 and a cost of 10 percent. The company has EBIT of $9,800 that is expected to continue in perpetuity. Assume there are no taxes.
a-1. What is the value of the company's equity?
a-2. What is the debt-to-value ratio?
b. What are the equity value and debt-to-value ratio if the company's growth rate is 4 percent?
c. What are the equity value and debt-to-value ratio if the company's growth rate is 8 percent?
You've collected the following information about Caccamisse, Incorporated:
Sales
Net income
Dividends
Total debt
Total equity
=
a. Sustainable growth rate
b. Additional borrowing
c. Growth rate
=
=
=
=
$ 330,000
$ 18,700
$ 7,500
$ 70,000
$ 101,000
a. What is the sustainable growth rate for the company?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
b. Assuming it grows at this rate, how much new borrowing will take place in the coming year, assuming a constant debt-equity
ratio?
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
c. What growth rate could be supported with no outside financing at all?
Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
%
%
Chapter 16 Solutions
Intermediate Financial Management (MindTap Course List)
Ch. 16 - Prob. 1QCh. 16 - Prob. 2QCh. 16 - Prob. 3QCh. 16 - One type of leverage affects both EBIT and EPS....Ch. 16 - Prob. 5QCh. 16 - Prob. 6QCh. 16 - Prob. 7QCh. 16 - Prob. 8QCh. 16 - Prob. 9QCh. 16 - Prob. 1P
Ch. 16 - Unlevered Beta
Counts Accounting’s beta is 1.15...Ch. 16 - Premium for Financial Risk
Ethier Enterprise has...Ch. 16 - Value of Equity after Recapitalization Nichols...Ch. 16 - Stock Price after Recapitalization Lee...Ch. 16 - Prob. 6PCh. 16 - Prob. 7PCh. 16 - Capital Structure Analysis Pettit Printing Company...Ch. 16 - Optimal Capital Structure with Hamada
Beckman...Ch. 16 - WACC and Optimal Capital Structure F. Pierce...Ch. 16 - Prob. 12PCh. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - Prob. 4MCCh. 16 - Prob. 5MCCh. 16 - Prob. 6MCCh. 16 - What does the empirical evidence say about capital...Ch. 16 - Suppose there is a large probability that L will...Ch. 16 - What is the value of Ls stock for volatilities...
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