Cross Town Cookies is an all-equity firm with a total market value of $790,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $203,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $72,200. What is the EPS if the debt is issued? Ignore taxes. Multiple Choice $1.96 $1.70 $1.41 $1.84 о O O O

Cross Town Cookies is an all-equity firm with a total market value of $790,000. The firm has 46,000 shares of stock outstanding. Management is considering issuing $203,000 of debt at an interest rate of 7 percent and using the proceeds to repurchase shares. Before the debt issue, EBIT will be $72,200. What is the EPS if the debt is issued? Ignore taxes. Multiple Choice $1.96 $1.70 $1.41 $1.84 о O O O

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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Assumptions: (a) Mr. X has a limited cash balance of P1,000,000.00. (b) The buying price of the stock is P10 per share (c) Mr. X wants to purchase 150,000 shares (d) The broker wants to lend Mr. X the deficit in exchange of 3% simple interest per month. (e) the transaction cost in buying the shares is 0.10 per share Variable rate plus P20,000 Fixed rate. (f) On September 1, 2021, Mr. X purchased 150,000 shares at 10 per share Using the above details, Assuming on October 1, 2021, Mr. X wants to sell the 150,000 shares to Mr. Y for 10.90 per share with a corresponding transaction cost of 0.05 per share Variable Rate plus P10,000 Fixed rate. What is the net income/loss of Mr. X in selling the stocks to Mr. Y after deducting transaction costs and interest payment to the broker? If you were the Financial Advisor of Mr. X, would you advise him to sell the stocks to Mr. Y? Why or why not?
A full equity firm has 5,000 shares outstanding worth $7 each. They are planning on issuing $10,000 of new perpetual debt at the 8% market rate of interest and using the proceeds to buy up stock. The effective tax rate is 25%. What is the change in the share price if they make the debt for equity exchange? Multiple Choice O $.50 per share $.20 per share $.80 per share $.16 per share
A firm is currently an all equity firm that has 395,000 shares of stock outstanding with a market price of $19.50 a share. The current cost of equity is 15.5% and the tax rate is 24%. The firm is considering adding $925,000 of debt with a coupon rate of 8% to it's capital structure. The debt will be sold at par value. What is the leveled value of the equity? A) 7,349,475 B) 8 716,950 C) 6,999,500 D) 7,528,275 E) 7,132,050
…Question in photo And return on equity is: 17.46% according to m and m proposition A. 13.09% B. 17.46% C. 13.16% D. 15% E. 16.70%
Q.An all-equity company that has a current value $300,000 is considering borrowing $60,000 and using the borrowed funds to repurchase shares. The company can borrow at 5%. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied except the corporate tax rate is 35%, and investors are subject to an 18% tax rate on equity income and a 25% tax rate on debt income. If the company proceeds with the capital restructuring, what will be the value of the company according to M&M Proposition I with personal and corporate taxes?
Currently, a firm has $400,000 in debt outstanding and 4,000,000 shares outstanding. The firm is considering changing to an all-equity capital structure, which would result in 5,000,000 shares outstanding. What is the interest rate on the firm's debt if the break-even EBIT is $150,00O?
Consider the following information for Abracadabra of America . Debt $84,000,000 book value outstanding The debt is trading at 86% of book value. The yield to maturity is 7% . Equity: 3.400,000 shares selling at $51 per share. Assume the expected rate of return on Abracadabra's stock is 16% . Taxes: Abracadabra's marginal tax rate is T0.21. You want to include financing in your valuation decision. Calculate the rate that you would use (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) answer
Please solve in one hour
Kline Construction is an all-equity firm that has projected perpetual EBIT of $376,000. The current cost of equity is 13.7 percent and the tax rate is 21 percent. The company is in the process of issuing $992,000 worth of perpetual bonds with an annual coupon rate of 5.5 percent at par. What is the value of the levered firm? Multiple Choice $1,482,044 $2,168,175 $1,936,600 $2,376,495 $1,829,684
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