Provide correct calculation for this accounting question Big Blue Banana (BBB) is a clothing retailer witha current share price of $20 and with 30 millionshares outstanding. Suppose BBB announces a plan tolower its corporate taxes by borrowing $81 millionand using the proceeds to repurchase shares.Suppose BBB pays corporate taxes of 35% and thatshareholders expect the change in debt to bepermanent. Assuming thatthat capital markets areperfect except for thethe existence of corporatetaxes, what is the share price of BBB after thisannouncement?

To assess the share price of Big Blue Banana (BBB) following the news, we will use the…

Answered: Big Blue Banana (BBB) is a clothing…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 8P

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General Accounting
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
Solve it correctly please.
Darlene Corporation has zero debt—it is financed only with common equity. Its total assets are P410,000. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? * Choices: P189,851 P172,200 P180,810 P164,000 P155,800
Hutchinson Corporation has zero debt - it is financed only with common equity. Its total assets are $400,000. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? Select the correct answer. a. $160,000.00 b. $160,011.80 c. $159,988.20 d. $159,964.60 e. $159,976.40
ABC Corp. is an e-commerce company. Its management is planning to start its own package delivery business (new to the firm) to be financed with only equity. SF logistics and XYZ Enterprise are two firms that specializes in this package delivery business. You are given the following financials for these firms: ABC Corp. currently has a stock price of $18 per share with 25 million shares outstanding. Its market value of debt is $300 million. The company has a debt beta of 0.1, an equity beta of 1.63, and it faces a tax rate of 21%. XYZ Enterprise is an all-equity financed firm with a market capitalization of $400 million. The company has an equity beta of 1.4 and faces a tax rate of 21%. SF logistics has a stock price of $10 per share with 10 million shares outstanding. Its market value of debt is $300 million. The firm has a debt beta of 0.2, an equity beta of 1.6, and it faces a tax rate of 21%. Assume that the risk-free rate is 2% and the expected market return is 6%. If the…
Guam Motors is presently an all equity firm. It needs to raise $2.5m in additional funds. After raising its funds, it expects perpetual EBIT to be $600,000. The firm's unlevered cost of equity is 12% and its before tax cost of debt is 8%. 1) If there are no corporate taxes, under M-M theory what is the value of Guam Motors if it employs common stock to raise the needed funds? 2)If there are no corporate taxes and Guam Motors employs debt to raise 50% of the firm value, what is the cost of equity, the weighted average cost of capital and the value of the firm? 3) If there are no corporate taxes and M-M theory holds, will investors prefer levered firm to the unlevered firm? Why? 4)Will the presence of corporate taxes increase or decrease the firm value? Why? 5)Assume that corporate tax is 25%. What is the all equity value of Guam Motors? 6)If the corporate tax is 25% and Guam Motors employees same amount of debt as in 2) to raise part of the firm value, what is the cost of equity,the…
Beranek Corp has $800,000 of assets (which equal total invested capital), and it uses no debt—it is financed only with common equity. The new CFO wants to employ enough debt to raise the total debt to total capital ratio to 40%, using the proceeds from borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? a. $571,429 b. $320,000 c. $1,120,000 d. $160,000 e. $480,000
KMS corporation has assets of $650 million, $65 million of which are cash. It has debt of $216.7 million. If KMS repurchases $21.7 million of its stock: a. What changes will occur on its balance sheet? b. What will be its new leverage ratio? a. What changes will occur on its balance sheet? (Select the best choice below.) A. Both the cash balance and shareholder equity will drop by $21.7 million. B. Both the cash balance and shareholder equity will increase by $21.7 million. C. Both accounts receivable and shareholder equity will drop by $21.7 million. D. Debt will increase by $21.7 million and shareholder equity will decrease by $21.7 million. b. What will be its new leverage ratio? The new leverage ratio after the repurchase is %. (Round to one decimal place.)

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