Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if youtake it over and replace the managers. vou can improve its pertormance and increase its value. However. Alpha Inc. has a poison pill with a 20% trigger. As a consequence, in the event that someone buys more than 20% of the capital without management approval, it would be triggered, and all Alpha Inc.'s shareholders - other than the acquirer would be offered to buy one new share in Alpha for each share they already own, at a 50% discount. If the price remains at $40 while you are acquiring shares in your takeover attempt, and the management of the company decides to resist your buyout attempt when you pass the 20% threshold of ownership: How many new shares will be issued and at what price?What will happen to your percentage ownership of Alpha inc.?What will happen to the price of your shares of Alpha Inc.?Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits) ? If you gain, from where does the gain come ( who loses)?.

Alpha Inc.'s stock price is $40, and the firm has 4 million shares outstanding. You are confident that, if youtake it over and replace the managers. vou can improve its pertormance and increase its value. However. Alpha Inc. has a poison pill with a 20% trigger. As a consequence, in the event that someone buys more than 20% of the capital without management approval, it would be triggered, and all Alpha Inc.'s shareholders - other than the acquirer would be offered to buy one new share in Alpha for each share they already own, at a 50% discount. If the price remains at $40 while you are acquiring shares in your takeover attempt, and the management of the company decides to resist your buyout attempt when you pass the 20% threshold of ownership: How many new shares will be issued and at what price?What will happen to your percentage ownership of Alpha inc.?What will happen to the price of your shares of Alpha Inc.?Do you lose or gain from triggering the poison pill? If you lose, where does the loss go (who benefits) ? If you gain, from where does the gain come ( who loses)?.

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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Similar questions

Norton Electrical has quite a few positive NPV projects from which to choose. The problem is that it has more of these projects than it can finance without issuing new stock and the board of directors refuses to issue any new shares in the foreseeable future. Norton's projected net income is $150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%. The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy. Versus the current policy, how muchlarger could the capital budget be if (1) the target debt ratio were raised to 75%, other things held constant, (2) the target payout ratio were lowered to 20%, other things held constant, and (3) the debt ratio and payout were both changed by the indicated amounts. Increase in Capital Budget Lower Payout to 20% Do both Increase Debt to 75%
An all-equity business has 150 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? (Enter your answers in billions rounded to 1 decimal place.) Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? (Enter your answers in billions rounded to 1 decimal place.) Assume now that the recap increases total firm cash flows, which adds $200 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity? (Enter your answers in billions rounded to 2 decimal places.)
A company has 1 million shares outstanding and earnings of $2 million. The company decides to use $10 million of unused cash to buy back shares on the open market. to buy back shares on the open market. The company's stock is trading at $50 per share. If the firm uses all of the $10 million of idle cash to buy back shares on the open market, the firm's shares trade at $50 per share. to buy back shares at market price, the company's earnings per share will be the highest share of the firm will be closest to : B. $2.30. C. $2.50. A. $2.00.
The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $220. Once new stock is issued, the Turnip Company would receive only $210. The dividend rate is 8%, and the par value of the stock is $200. Compute the cost of capital of the stock to your firm. Show all work.
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You are an analyst in the Finance department at a conglomerate, where the CFO believes the cost of equity is 10% and the WACC is 7.5%. A project has been proposed to create a new business line, and your manager asks you to calculate the NPV assuming the project is funded entirely by equity. Should you discount the CF’s using a) 10%, b) 7.5% or c) some other rate? Why?
You founded a firm that currently has 10 million shares, of which you own 7 million. You are considering an IPO where you would sell 3 million shares for $22 each. If all of the shares sold are secondary, what is the maximum number of secondary shares you could sell and still retain more than 50% ownership of the firm? How much would the firm raise in that case? C What is the maximum number of secondary shares you could sell and still retain more than 50% ownership of the firm? shares. The maximum number of secondary shares you could sell is (Round to the nearest whole number.) How much would the firm raise in that case?
Ketchup Corporation is currently trading at $40 per share. There are 0.5 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 20% over 1 year if the management were replaced. How much would you gain from acquiring 60% of Ketchup's shares by getting a 1-year, 10%-interest loan? Hint: you are not using your own money. The money for the investment comes from the loan. $4,000,000. $0. $2,400,000. $1,320,000. $1,200,000.
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This is a two-part question. I need help with problem 3, but some of the details are included in problem 1. PROBLEM 1 A company is going public at $16 and will use the ticker XYZ. The underwriters will charge a 7 percent spread. The company is issuing 20 million shares, and insiders will continue to hold an additional 40 million shares that will not be part of the !PO. The company will also pay S 1 million of audit fees, S2 million of legal fees, and $500,000 of printing fees. The stock closes the first day at $19. Answer the following questions: a. At the end of the first day, what is the market capitalization of the company? b. What are the total costs of the offering? Include underpricing in this calculation. PROBLEM 3 The company in Problem 1 grants a 15 percent overallotment option to the underwriter. The underwriter issues shares that are backed by the entire overallotment option but has not yet exercised the option. a. Explain what will happen if the price of the…
LL corporation has $500M of excess cash. The firm has no debt and 1K shares outstanding with a current market price of $20 per share. LL’s board has decided to pay out this cash as a one time dividend. What is the ex-dividend price of a share in a perfect capital market?
2. An analyst for Acme, R. Runner, has recommended that Peter the Anteater purchase shares in a private firm (a firm that is not traded on any exchange) called Dynamite Corp. Dynamite has 30% debt and 70% equity. R. Runner believes that Dynamite will generate a return of 10% over the next year. Since Y. Lee is new to the job, he decides to do a little research on his own. He finds a company, Explosions Unlimited, that has very similar business as Dynamite. Explosions has an equity beta of 1.05 and is composed of 40% debt and 60% equity. Should Peter the Anteater buy the stock? The expected return on the market is 12% and the expected risk-free rate is 5%.

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