7. Problem 10-07 B Problem 10-07 eBook A stock is currently trading for $34. The company has a price-earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $39. The company announces that it will use $300 million to repurchase shares. a. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. After the repurchase, what is the actual price-earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places. c. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent. The market value of the stock is now $ d. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, what would be the actual price-earnings multiple after the dividend? Do not round intermediate calculations. Round your answer to two decim places.
7. Problem 10-07 B Problem 10-07 eBook A stock is currently trading for $34. The company has a price-earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $39. The company announces that it will use $300 million to repurchase shares. a. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. After the repurchase, what is the actual price-earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places. c. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent. The market value of the stock is now $ d. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, what would be the actual price-earnings multiple after the dividend? Do not round intermediate calculations. Round your answer to two decim places.
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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Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
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The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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Transcribed Image Text:7. Problem 10-07
eBook
Problem 10-07
A stock is currently trading for $34. The company has a price-earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $39. The company announces that it will use $300 million to
repurchase shares.
a. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent.
$
b. After the repurchase, what is the actual price-earnings multiple of the stock? Do not round intermediate calculations. Round your answer to two decimal places.
c. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, how would the value of the stock have changed, according to your model? Do not round intermediate calculations. Round your answer to the
nearest cent.
The market value of the stock is now $
d. If the company had used the $300 million to pay a cash dividend instead of doing a repurchase, what would be the actual price-earnings multiple after the dividend? Do not round intermediate calculations. Round your answer to two decimal
places.
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