4. A company has 80 million shares outstanding with an equity value of Kshs. 6 billion. The company has a debt-to-equity ratio of 0.6. The management has decided to restructure financing of the firm by issuing new equity to repay all outstanding debt. (i) How many new shares must the firm issue? (ii) Suppose you are a shareholder holding 100 shares, but not in support of this decision. Describe what you will do to cover for the effect of this decision on your holding, assuming a perfect capital market.

4. A company has 80 million shares outstanding with an equity value of Kshs. 6 billion. The company has a debt-to-equity ratio of 0.6. The management has decided to restructure financing of the firm by issuing new equity to repay all outstanding debt. (i) How many new shares must the firm issue? (ii) Suppose you are a shareholder holding 100 shares, but not in support of this decision. Describe what you will do to cover for the effect of this decision on your holding, assuming a perfect capital market.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Cliff Corp (CC) has assets of $300 million including $25 million in cash. CC has 1 million share of stock outstanding and $70 million of debt. Assume capital markets are perfect. What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18 million in dividends, then what is the new ex- dividend share price? If instead of paying the dividend CC repurchases $18 million of stock, then what will be the new share price? What is the new debt-to-equity ratio after the payout?
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Kinston Enterprises has a debt obligation of $47 million that is due now. The market value of Kinston's assets is $102 million, and the firm has no other liabilities. Assume that capital markets are perfect and that Kinston has 5 million shares outstanding. If Kinston decides to sell new shares to raise capital to pay its debt obligation, how many shares will be issued? 5.0 million 4.3 million 4.7 million 4.0 million
Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely.
You currently own 1,500 shares of JKL, Inc. JKL is an all equity that has 700,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $3,500,000. You believe that the JKL should finance 50 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 9 percent interest on their debt, answer the following questions. Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 9 percent interest. Part B. How many additional shares of JKL stock must you purchase (using the borrowed funds in Part A) to create the leverage on your own?
n Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O D. $1.143 O C. $1.500 SOE. $1.125 $0.875 $0.667 27/
Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? B
Flimsy Safe Room’s, Inc. has total assets of $1,000,000. The firm has $100,000 in inventory. It has $300,000 in long-term debt and $400,000 in current assets. The common stockholders’ equity is $400,000. The firm does not have any preferred stock outstanding. What is Flimsy Safe Room's total debt ratio defined as total liabilities to total assets? Question 1 options: A) 0.6 = 60% B) 0.4 = 40% C) 0.5 = 50% D) 0.3 = 30%
Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid?

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