Please provide correct solution these general accounting question An all-equity business has 100 million shares outstanding selling for $20 a share.Management believes that interest rates are unreasonably low and decides toexecute a dividend recapitalization (a recap). It will raise $1 billion in debt andrepurchase 50 million shares.a. What is the market value of the firm prior to the recap? What is the market valueof equity?b. Assuming the Irrelevance Proposition holds, what is the market value of the firmafter the recap? What is the market value of equity?

Step 1: Define Common Share OutstandingCommon shares outstanding refers to the total number of…

Answered: An all-equity business has 100 million…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter15: Capital Structure Decisions

Section: Chapter Questions

Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...

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An unlevered firm has expected earnings of $2,401 and a market value of equity of $19,600. The firm is planning to issue $4,000 of debt at 6 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase?
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.)
An all-equity business has 120 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? Note: Enter your answers in billions rounded to 2 decimal places.b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.d. Assume now that the recap increases total firm cash flows, which adds $140 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.
Suppose instead that the company is about to pay a dividend of $2.00 per share. You also learn that the company is expected to have net income of $100 million, dividends of $50 million, and total equity of $1.5 billion (and that these relationships are expected to be stable). If the relevant required rate of return is 10%, what is the intrinsic value per share of the company’s stock?
REH Corporation's most recent dividend was $2.26 per share, its expected annual rate of dividend growth is 5%, and the required return is now 15%. A variety of proposals are being considered by management to redirect the firm's activities. Determine the impact on share price for each of the following proposed actions. a. Do nothing, which will leave the key financial variables unchanged. b. Invest in a new machine that will increase the dividend growth rate to 9%and lower the required return to 11%. c. Eliminate an unprofitable product line, which will increase the dividend growth rate to 8% and raise the required return to 17%. d. Merge with another firm, which will reduce the growth rate to 2% and raise the required return to 18%. e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 17%.
Suppose that Papa Bell Inc. equity is currently selling for $41 per share, with 3.6 million shares outstanding. The firm also has 8000 bonds outstanding, which are selling at 95% of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E ratio of 0.5. Which type of security (stocks or bonds) would the firm need to sell to accomplish this? How much would it have to sell? (Enter your answer in dollars not in millions. Do not round immendiage calculations and round your final answer to 2 decimal places.)
Use the following information to value a firm’s assets. Assume the following: the market value of the firm's assets is expected to remain constant over time so the firm doesn't grow and can be valued as a level perpetuity, the firm has a constant debt-to-assets ratio, the bonds are priced at par, and the stock's expected capital returns are zero. Relevant data: The number of shares on issue is 1 million and the number of bonds is 800,000 The constant annual dividend per share is $3 The bonds have an annual fixed coupon payment of $2.50 10-year government bonds have a yield of 2% and the market risk premium is 5% The beta of levered equity is 1.2 The beta of the bonds is 0.9 Which of the following is the market value of the levered firm’s assets? a. $68.3 million b. $21.2 million c. $70.1 million d. $42.9 million e. $54.7 million
Assume that company A wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $21 per share and no debt. A has had consistently stable earnings, and pays a 35% tax rate. Management plans to borrow $50 million on a permanent basis and they will use the borrowed funds to repurchase outstanding shares. If shareholders are perfectly rational and informed, what will the repurchase price per share be (keep two decimal places and assume that the new borrowing will not have any negative effects)?
Global Pistons (GP) has common stock with a market value of $380 million and debt with a value of $245 million, Investors expect a 17% return on the stock and a 4% return on the debt. Assume perfect capital markets. a. Suppose GP issues $245 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? b. Suppose instead GP issues $53.63 million of new debt to repurchase stock. 1. If the risk of the debt does not change, what is the expected return of the stock after this transaction? 1. If the risk of the debt increases, would the expected return of the stock be higher or lower than when debt is issued to repurchase stock in part (0)7 a. Suppose GP issues $245 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? If GP issues $245 million of new stock to buy back the debt, the expected return is [17%. (Round to two decimal places.)
Answer? ? Financial accounting question
Hardmon Enterprises is currently an all-equity firm with an expected return of 18.3%. It is considering a leveraged recapitalization in which it would borrow and repurchase existing shares. Assume perfect capital markets. a. Suppose Hardmon borrows to the point that its debt-equity ratio is 0.50. With this amount of debt, the debt cost of capital is 5%. What will be the expected return of equity after this transaction? b. Suppose instead Hardmon borrows to the point that its debt-equity ratio is 1.50. With this amount of debt, Hardmon's debt will be much riskier. As a result, the debt cost of capital will be 7%. What will be the expected return of equity in this case? c. A senior manager argues that it is in the best interest of the shareholders to choose the capital structure that leads to the highest expected return for the stock. How would you respond to this argument?
A. Suppose that Taco John’s equity is currently selling for $55 per share, with 4million shares outstanding. If the firm also has 17 thousand bonds outstanding,which are selling at 94 percent of par, what are the firm’s current capital structure weights? Use the capital structure weights equation:B. Suppose that Taco John’s is considering an active change to their capital structure so as to have a D/E of 0.4, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?

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