b. Suria Motors Bhd. is an all-equity firm (i.e. no debt) with 200,000 shares outstanding. The company's EBIT is RM2,000,000, and EBIT is expected to remain constant over time (i.e. g = 0%). The company pays out all of its earnings each year as dividend, so its earnings per share (EPS) equal its dividends per share (DPS). The company's tax rate is 40 percent. The company is considering issuing RM2 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of 10 percent. The risk-free rate in the economy is 6.6 percent, and the market risk premium is 6 percent. The company's beta is currently 0.9, but its investment bankers estimate that the company's beta would rise to 1.1 if it proceeds with the recapitalization. Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization.

b. Suria Motors Bhd. is an all-equity firm (i.e. no debt) with 200,000 shares outstanding. The company's EBIT is RM2,000,000, and EBIT is expected to remain constant over time (i.e. g = 0%). The company pays out all of its earnings each year as dividend, so its earnings per share (EPS) equal its dividends per share (DPS). The company's tax rate is 40 percent. The company is considering issuing RM2 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of 10 percent. The risk-free rate in the economy is 6.6 percent, and the market risk premium is 6 percent. The company's beta is currently 0.9, but its investment bankers estimate that the company's beta would rise to 1.1 if it proceeds with the recapitalization. Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization.

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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During the past five years, JKL had consistently paid 50% of earnings available to common shareholders as dividends. Next year, projected net income is at P6,000,000. Preferred shareholders receive P1,200,000 in dividends. The company maintains it's capital structure at 25.5% Debt; 15% Preferred stock; 60% common equity. What is the retained earnings break-point next year? A. P5,760,000 B. P4,800,000 C. P4,000,000 D. P6,000,000 E. Answer not given
A company has a net profit after taxes of Rs 1,20,000 and pays a cash dividend of Rs 48000 on its 36000 outstanding shares at a time when the share is selling at Rs12. What is the earnings yield ratio? * O 27.75% O 25% 25.75% O 27.25%
Chella Vibes Industries capital structure consists solely of debt and common equity. It can issue debt at 11%, and its common stock paid a dividend of $1.50. The stock’s price is currently $22.30, its dividend is expected to grow at a constant rate of 5% per year, its tax rate is 40%, and its WACC is 10.56%. What percentage of the company’s capital structure consists of debt and common equity (ie: what are the weights of debt and common equity)?
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 9%, and its common stock currently pays a $2.75 dividend per share (Do = $2.75). The stock's price is currently $29.75, its dividend is expected to grow at a constant rate of 7% per year, its tax rate is 25%, and its WACC is 15.40%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places. %
XYZ Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that XYZ has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. XYZ is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If XYZ goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?
Assume that your company is an all-equity firm with 250,000 shares outstanding. The company's EBIT is $2,500,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share are equal to its dividends per share and this is currently $6.00 per share. The company's tax rate is 40 percent, its current cost of stock, Ks, is 8 percent, and its current stock price is $75 per share. Now assume that the company is considering issuing $3.75 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated yield to maturity of 5 percent or interest of $187,500. The risk-free rate in the economy is 4 percent, and the market risk premium is 5 percent. The company's beta is currently 0.8, but its investment bankers estimate that the company's beta would rise to 0.9 if it proceeds with the recapitalization. Assume that the shares are repurchased at the equilibrium price that…
The paid-up share capital and free reserves of Narmada Ltd. stood at rupees 100 lakh and rupees 20 lakh respectively. During the immediately preceding three years company had distributed dividends at the rate of 10%, 8%, and 12%. The company has incurred losses of rupees 2 lakh in the current financial year. Find out the maximum amount which can be distributed as dividends for the current financial year. Write the detailed procedure for distribution of dividend assuming all the possibilities
Hook Industries's capital structure consists solely of debt and common equity. It can issue debt at rd = 11%, and its common stock currently pays a $2.50 dividend per share (D0 = $2.50). The stock's price is currently $34.75, its dividend is expected to grow at a constant rate of 8% per year, its tax rate is 25%, and its WACC is 13.35%. What percentage of the company's capital structure consists of debt? Do not round intermediate calculations. Round your answer to two decimal places.
9
b. ABC Inc. finances its operations with 40 percent debt and 60 percent equity. Its net income is $30 million and it has a dividend payout ratio of 30%. Its capital budget is B = $100 million this year. The annual yield on the company's debt is 7% and the company's tax rate is T = 30%. The company's common stock trades at Po = $100 per share, and its current dividend of Do = $4 per share is expected to grow at a constant rate of g = 5% a year. The floatation cost of external equity, if issued, is F = 1.5% of the dollar amount issued. What is the company's weighted average cost of capital?
K AFW Industries has 189 million shares outstanding and expects earnings at the end of this year of $729 million. AFW plans to pay out 58% of its earnings in total, paying 36% as a dividend and using 22% to repurchase shares. If AFW's earnings are expected to grow by 7.2% per year and these payout rates remain constant, determine AFW's share price assuming an equity cost of capital of 11.4%. ECCORD The price per share will be $. (Round to the nearest cent.) his efu
(Cost of common equity) Falon Corporation is issuing new common stock at a market price of $27.96. Dividends last year were $1.26 and are expected to grow at an annual rate of 6.3 percent forever. What is Falon's cost of common equity capital? The company's cost of common equity is %. (Round to two decimal places.)

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