Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 9, Problem 32P
a.
Summary Introduction
To determine: The change in stock price.
Introduction:
Stock price: The stock is the price of the single purchasable/saleable share. Basically a stock price is the highest amount that the person willing to pay for the share and lowest amount that can purchased.
b.
Summary Introduction
To find: Whether stock will be expected to sell after hearing announcement and make profit after hearing announcement.
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Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the
loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $63 million at the end of next year.
a. If Roybus has 32 million shares outstanding and a weighted average cost of capital of 13.8%, what change in Roybus's stock price would you expect upon this
announcement? (Assume that the value of Roybus's debt is not affected by the event.)
b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.
Mm.2.
Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $57 million at the end of next year.
a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 12.9%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.)
b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.
KMS corporation has assets of $650 million, $65 million of which are cash. It has debt of $216.7 million. If KMS repurchases $21.7 million of its stock:
a. What changes will occur on its balance sheet?
b. What will be its new leverage ratio?
a. What changes will occur on its balance sheet? (Select the best choice below.)
A. Both the cash balance and shareholder equity will drop by $21.7 million.
B. Both the cash balance and shareholder equity will increase by $21.7 million.
C. Both accounts receivable and shareholder equity will drop by $21.7 million.
D. Debt will increase by $21.7 million and shareholder equity will decrease by $21.7 million.
b. What will be its new leverage ratio?
The new leverage ratio after the repurchase is
%. (Round to one decimal place.)
Chapter 9 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 9.1 - How do you calculate the total return of a stock?Ch. 9.1 - Prob. 2CCCh. 9.2 - In what three ways can a firm increase its future...Ch. 9.2 - Under what circumstances can a firm increase its...Ch. 9.3 - How does the growth rate used in the total payout...Ch. 9.3 - Prob. 2CCCh. 9.3 - Prob. 3CCCh. 9.4 - Prob. 1CCCh. 9.4 - What implicit assumptions are made when valuing a...Ch. 9.5 - State the efficient market hypothesis.
Ch. 9.5 - Prob. 2CCCh. 9 - Assume Evco, Inc., has a current price of 50 and...Ch. 9 - Anle corporation has a current price of 20, is...Ch. 9 - Suppose Acap Corporation will pay a dividend of...Ch. 9 - Prob. 4PCh. 9 - NoGrowth Corporation currently pays a dividend of...Ch. 9 - Summit Systems will pay a dividend of 1.50 this...Ch. 9 - Prob. 7PCh. 9 - Canadian-based mining company EI Dorado Gold (EGO)...Ch. 9 - In 2006 and 2007, Kenneth Cole Productions (KCP)...Ch. 9 - DFB, Inc., expects earnings at the end of this...Ch. 9 - Cooperton Mining just announced it will cut its...Ch. 9 - Procter and Gamble (PG) paid an annual dividend of...Ch. 9 - Colgate-Palmolive Company has just paid an annual...Ch. 9 - Prob. 14PCh. 9 - Halliford Corporation expects to have earnings...Ch. 9 - Prob. 16PCh. 9 - Maynard Steel plans to pay a dividend of 3 this...Ch. 9 - Prob. 18PCh. 9 - Prob. 19PCh. 9 - Prob. 20PCh. 9 - Prob. 23PCh. 9 - Prob. 24PCh. 9 - Prob. 25PCh. 9 - Suppose that In January 2006, Kenneth Cole...Ch. 9 - In addition to footwear, Kenneth Cole Productions...Ch. 9 - You read in the paper that Summit Systems from...Ch. 9 - Prob. 31PCh. 9 - Prob. 32PCh. 9 - Prob. 33P
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