Zerriman Co. wants to raise equity capital (sell stock shares) to fund a $15 milliondollar project that will increase net income by 18%. The company will sell sharesfor $160 each less the underwriter's 7.86% charge. Overhead costs for the stockissue will be $1,850,000. Currently, the company has 2,635,000 shares outstandingand generates $81,955,440 in net income. If the Price-to-Earnings ratio (PE ratio)stays constant at 5.25, how will the stock sale impact the market value of the shares(stock price)? (Note: this problem will require calculating the number of shares sold,as well as EPS and share price for pre- and post-sale.)

EPS is earning per share and income earned by shareholders and can be obtained by dividing net…

ect that will increase net income by 18%. The company will sell shares ach less the underwriter's 7.86% charge. Overhead costs for the stock be $1,850,000. Currently, the company has 2,635,000 shares outstanding ates $81,955,440 in net income. If the Price-to-Earnings ratio (PE ratio) tant at 5.25, how will the stock sale impact the market value of the shares ce)? (Note: this problem will require calculating the number of shares sold, EPS and share price for pre- and post-sale.)

ect that will increase net income by 18%. The company will sell shares ach less the underwriter's 7.86% charge. Overhead costs for the stock be $1,850,000. Currently, the company has 2,635,000 shares outstanding ates $81,955,440 in net income. If the Price-to-Earnings ratio (PE ratio) tant at 5.25, how will the stock sale impact the market value of the shares ce)? (Note: this problem will require calculating the number of shares sold, EPS and share price for pre- and post-sale.)

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

See similar textbooks

Similar questions

Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,260 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,260 worth of stock. Ignore taxes. Liabilities and Assets Equity $ 7,200 Fixed assets 29,300 Debt $11,300 25,200 Cash Equity a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $25,500 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $25,500 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $25,500 a year, find the price-earnings ratio if the…
The Turnip Company plans to issue preferred stock. Currently, the company’s stock sells for $110. Once new stock is issued, the Turnip Company would receive only $90. The dividend rate is 8%, and the par value of the stock is $100. Compute the cost of capital of the stock to your firm. Show all work.
The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below. Liabilities and Equity $1, 000, 000 Assets Cash Fixed assets $150, 000 Equity 850, 000 So far, price of the share today is $50 per share and it will sell at $49 per share for tomorrow. Now suppose that Payout announces its intention to repurchase $20,000 worth of stock instead of paying out the dividend. a. What effect will the repurchase have on an investor who currently holds 200 shares and sells 4 of those shares back to the company in the repurchase? Total value of the position b. What effect will the initial cash dividend payment have on the same investor? Total value of the position
Lear & Co has a PE of 17, a forward PE of 14.5, and a price of $67.40 per share. The company has 85.2 million shares outstanding. Net income for next year is projected to be closest to: O A. $396.0 million. O B. $832.7 million. O C. $337.8 million.
Hettenhouse Company's perpetual preferred stock sells for $103.00 per share, and it pays a $7.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC? a. 7.28% b. 7.50% c. 7.66% Od. 8.23%
The stock of North American Danduff Company is selling at $80 per share. The firm pays a divdend of $2.50 per share. a) What is the dividend yield? b) If the firm has a payout rate of 50% , what is the firm's P/E ratio?
A biotechnology company's stock is currently selling for $48.35 per share. The earnings per share are $2.14, and the dividend is $1.80. (a) What is the current yield of the stock (as a %)? (Round your answer to the nearest tenth of a percent.) % (b) What is the price-earnings ratio? (Round your answer to the nearest whole number.)
A. Torch Industries can issue perpetual preferred stock at a price of $55.00 a share. The stock would pay a constant annual dividend of $4.50 a share. What is the company's cost of preferred stock, rp? Round your answer to two decimal places. = %_______ B. The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 15%, its before-tax cost of debt is 8%, and its marginal tax rate is 25%. Assume that the firm's long-term debt sells at par value. The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1,180. The firm has 576 shares of common stock outstanding that sell for $4.00 per share. Assets Liabilities And Equity Cash $ 120 Accounts payable and accruals $ 10 Accounts receivable 240 Short-term debt 60 Inventories 360 Long-term debt 1,120 Plant and equipment, net 2,160 Common equity 1,690 Total assets $2,880 Total liabilities and equity $2,880 Calculate Paulson's WACC using…
Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $18.40 per share for 670,000 shares. The company will receive $16.75 per share and will incur $225,000 in registration, accounting, and printing fees. 1. What is the spread on this issue in percentage terms? 2. What are the total expenses of the issue as a percentage of the total value (at retail)?
To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data about the company's stock: D1 $1.45; PO = $25; and g = 6.50% (constant). What is the cost of common from issuing new stock, assuming the flotation cost is 10% of the stock price? = 13.59% 11.10% 12.94% 11.68% 12.30%

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS