Company B's board is meeting to decide how to pay out $20 million in excess cash to shareholders. The company has 10 million shares outstanding, no debt, faces an equity cost of capital = WACC = 12%, and expects to generate future free cash flows of $48 million per year forever that will be paid out to shareholders as dividends each period. Calculate each shareholders' wealth if the company decides to pay out the $20 million excess cash immediately by repurchasing stock. ( Hint: shareholder wealth = value of equity holding plus cash from repurchase.)

The finance manager of the GZA Ltd is considering a recapitalization plan that would convert GZA from its current all-equity capital structure to one including substantial financial leverage.   -GZA now has 10,000,000 ordinary shares outstanding, which are selling for $15 each, and the company’s EBIT is expected to be $12,000,000 per year for the foreseeable future. -The recapitalization proposal is to issue $60,000,000 worth of long-term, perpetual debt at an annual interest rate of 3.0% and use the proceeds to repurchase 4,000,000 ordinary shares worth $60,000,000. Assume perfect capital markets with no market frictions such as corporate or personal income taxes. Calculate the earnings per share and expected return on equity for GZA’s shareholders under both the current all-equity capital structure and under the recapitalization plan.

The finance manager of the GZA Ltd is considering a recapitalization plan that would convert GZA from its current all-equity capital structure to one including substantial financial leverage.   -GZA now has 10,000,000 ordinary shares outstanding, which are selling for $15 each, and the company’s EBIT is expected to be $12,000,000 per year for the foreseeable future. -The recapitalization proposal is to issue $60,000,000 worth of long-term, perpetual debt at an annual interest rate of 3.0% and use the proceeds to repurchase 4,000,000 ordinary shares worth $60,000,000. Assume perfect capital markets with no market frictions such as corporate or personal income taxes. Calculate the breakeven level of EBIT where the earnings per share are the same under the current and proposed capital structures.

Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is currently financed with 75 percent equity and 25 percent debt. Your analysis tells you that the appropriate discount rates are 10 percent for the cash flows, and 7 percent for the debt. You currently own 10 percent of the stock. If Dynamo wishes to change its capital structure from 75 percent to 60 percent equity, according to M&M Proposition 1, what are the interest payments that you receive after you undo the restructuring, and what are your total cash flows? (Do not round intermediate calculations. Round the final answer to two decimal places.) O $1.58 and $12.38 O $23.55 and $75 O $1.125 and $12.38 O $23.55 and $12.38

Penny Arcades, Inc., is trying to decide between the following two alternatives to finance its new $30 million gaming center: a. Issue $34 million of 6% bonds at face amount.b. Issue 1 million shares of common stock for $34 per share. 1. Assuming bonds or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. (Enter your answer in dollars, not millions. (i.e., $5.5 million should be entered as 5,500,000). Round your "Earnings per Share" to 2 decimal places. Round your "Earnings per Share" to 2 decimal places.)   Issue Bonds Issue stock   Operating income 10,900,000 10,900,000 Interest expense (bonds only)     Income before tax     Income tax expense (40%)     Net Income     Number of shares 3,900,000 4,900,000 Earnings per share

Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.

Phosfranc Inc. is valuing the equity of a company using the free cash flow from equity, FCFE, approach and has estimated that the FCFE in the next three years will be $6.25, $7.70, and $8.36 million respectively. Beginning in year 4, the company expects the cash flows to increase at a rate of 4 percent per year for the indefinite future. It is estimated that the cost of equity is 12 percent. What is the value of equity in this company? (Do not round intermediate computations. Round final answer to the nearest million.) A) $77 million B) $95 million C) $109 million D) $60 million

Mitsui Ltd has 1 million issued shares and expects unlevered after-tax cash flows of $300,000 every year, forever. The company is all-equity financed, and its cost of capital is 12% p.a. The company's tax rate is 30%. The company has just announced its intention to borrow an additional $1,400,000 of perpetual debt (at a 7% p.a. interest rate) and use the proceeds to repurchase shares? a) Calculate the price per share of Mitsui Ltd immediately before the repurchase announcement. b) Calculate the price of a share in Mitsui Ltd immediately after the repurchase announcement but before the new borrowings occur (assuming that the market expects repurchase to occur with certainty and that there are no other information effects).  c) Calculate the cost of equity capital for Mitsui Ltd after the share repurchase (ignoring other information effects).

Suppose that you are analysing the capital requirements for your Corporation for next year. You forecast that the company will need $15 million to fund all of its positive-NPV projects and you job is to determine how to raise the money. The corporation’s net income is $11 million, and it has paid a $2 dividend per share (DPS) for the past several years (1 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company’s target capital structure is 30% debt and 70% equity.   H. If a firm follows the residual distribution policy, what actions can it take when its forecasted retained earnings are less than the retained earnings required to fund its capital budget? I. Define the term ‘Dividend Policy’? What are the main elements of the Dividend Policy? J. What are the different theories on investor preference for dividends? Explain each theory?

Berea Resources is planning a$75million capital expenditure program for the coming vear. Next year, Berea expects to report to the IR5 earnings of s40 milion after interest and tanes The company presently has 22 milion shares of commoo stock issued and outstanding. Dividend payments are expected to increase from the present level of s8 millon co 512 manion, The company expects its current asset needs to increase from a current level of$22millon to$27malion, Current liabilibes, exduding short-tern bank berrowirgs, are expected to incease from$13million to$18milion. Interest payments are s5 milion next year, and long-term debt retiremert obligations are$6million next year. Deoreciation next year is expectad to be$16million on the company's financial statements, but the company will report depreciation of$19million for tax purposes. How much extemal financing is required by Berea for the coming yean? Enter your answer in malions. For example, an answer of tt milion should be enternd as 1,…