Calculate the new stock price on these general accounting question Eaton, Inc., wishes to expand its facilities. The companycurrently has 5 million shares outstanding and no debt. Thestock sells for $36 per share, but the book value per share is$8. The net income is currently $4 million. The new facility willcost $45 million, and it will increase net income by $800,000.Assume a constant price-earnings ratio.Calculate the new stock price.

Step 1: Define Earnings Per ShareThe ratio of the net income available to equity shareholders…

Answered: Eaton, Inc., wishes to expand its…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $50 per share, but the book value per share is $20. Net income for Johnson is currently $12 million. The new facility will cost $20 million, and it will increase net income by $800,000. Johnson raises stock at the current price to finance the facility. Assume a constant price–earnings ratio. Does stock price dilution occur? (A) stock price dilution occurs. (B) stock price dilution does not occur.
Wayne, Inc., wishes to expand its facilities. The company currently has 6 million shares outstanding and no debt. The stock sells for $28 per share, but the book value per share is $8. Net income is currently $4.2 million. The new facility will cost $42 million, and it will increase net income by $810,000. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. (Do not round intermediate calculations
crane Inc. common chairs currently sell for $30 each. The firms management believes that it's share should really sell for $54 each. If the firm just paid an annual dividend of two dollars per share and management expects those dividends to increase by 8% per year forever, and the common knowledge to the market. What is the current cost of common equity for the firm?
Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.44. For each year into the indefinite future, Remex's free cash flow is expected to equal $26 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 25% debt-equity ratio after the change, and it will maintain this debt-equity ratio forever. Assume that Remex's debt cost of capital will be 6.37%. Remex faces a corporate tax rate of 15%. Except for the corporate tax rate of 15%, there are no market imperfections. Assume that the CAPM holds, the risk-free rate of interest is 4.9%, and the expected return on the market is 10.78%. a. Using the information provided, fill in the table below. b. Using the information provided and your calculations in part (a), determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is…
Enterex Corporation expects sales of $437,500 next year. Enterex’s profit margin is 4.8% and its dividend payout ratio is 40%. What is Enterex’s projected increase in retained earnings for next year? Multiple Choice $8,400 $12,600 $14,700 $21,000 $262,500 None of the options are correct. Time sensitive!
The Clipper Sailboat Company is expected to earn $5 per share next year. The company will have a return on equity of 16 percent and the company will grow 4 percent in the future. The company has a cost of equity of 13 percent. Given that information, answer the following questions. a. What is the value of the company's stock? Do not round intermediate calculations. Round your answer to the nearest cent. $ b. What is the present value of the growth opportunity? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. Assume that the growth rate is only 3 percent. What would the appropriate P/E multiple be for this stock? Do not round intermediate calculations. Round your answer to two decimal places. x
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?
Covan, Inc. is expected to have the following free cash flow: a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price? The stock price should be $ (Round to the nearest cent.) A b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cont.) c. Assume you bought Covan stock at the beginning of…
Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.42. For each year into the indefinite future, Remex's free cash flow is expected to equal $28 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 28% debt-equity ratio after the change, and it will maintain this debt-equity ratio forever. Assume that Remex's debt cost of capital will be 6.11%. Remex faces a corporate tax rate of 15%. Except for the corporate tax rate of 15%, there are no market imperfections. Assume that the CAPM holds, the risk-free rate of interest is 4.7%, and the expected return on the market is 10.34%. a. Using the information provided, fill in the table below. b. Using the information provided and your calculations in part (a), determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is considering. a. Using the…
Covan, Inc. is expected to have the following free cash flow: a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2? a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price? The stock price should be $ (Round to the nearest cent.) b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price? If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cent.) c. Assume you bought Covan stock at the beginning of…
Please show the solution. Thank you. 1. Francisco Corporation is preparing to issue common stock. The Chief Financial Officer (CFO) is attempting to estimate Francisco Corporation’s cost of new common stock. The next dividend is expected to be P4.25 and will be paid one year from now. The current market price reflects an 18% expected annual return on investors. Dividends are expected to grow at a constant 8% per year. Flotation costs on the new issue will be P1.25 per share. Francisco’s cost of new common stock is nearest
Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The firm currently has no debt, its cost of equity is 12 percent, and the tax rate is 23 percent. Assume the firm borrows $155,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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