>> 1 2 Adeelza Deel Inc. has $40 million in total assets which includes $4 million in excess cash. The firm expects $27 million in net income this year of which 50% will be paid out as dividends to the 3,800,000 shares outstanding. In an effort to disburse the excess cash to its investors, the firm plans on buying back 10% of its shares outstanding. If an individual investor owns 500 shares, what will the investor recieved in total dividends after the stock buy-back? 3 45678 9 10 11 12 13 14 B C
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- Brightland Inc. has a market value equal to its book value. Currently, thefirm has excess cash of $1,500, other assets of $5,800, and equity valuedat $5,000. The firm has 250 shares of stock outstanding and net income of$500. What will the new earnings per share be if the firm uses 30 percentof its excess cash to complete a stock repurchase?Assume we are in a Modigliani-Miller (no tax) world. Exeter Corporation has $20 million in excess cash and has no debt. The firm expects to generate additional cash flow of $48 million per year in perpetuity. It has 10 million shares outstanding. Exeter Corporation decides to use the $20 million excess cash to repurchase shares in the stock market. After the share repurchase Exeter plans to distribute all of its annual cash flow as dividends every year. Exeter Corporation’s cost of capital is 12%. Q: What would be the stock price reaction after the announcement of the plan?Assume we are in a Modigliani-Miller (no tax) world. Exeter Corporation has $20 million in excess cash and has no debt. The firm expects to generate additional cash flow of $48 million per year in perpetuity. It has 10 million shares outstanding. Exeter Corporation decides to use the $20 million excess cash to repurchase shares in the stock market. After the share repurchase Exeter plans to distribute all of its annual cash flow as dividends every year. Exeter Corporation’s cost of capital is 12%. ( a) What would be the stock price reaction after the announcement of the plan? (b) Calculate the share price after the announcement. (c) How many shares can Exeter Corporation buy with its excess cash? (d) Show that the share price after the share repurchase transaction is identical to post-announcement price.
- Blue TJ’s has a market value equal to its book value. Currently, the firm has excess cash of $389,000, other assets of $911,674, and equity of $886,200. The firm has 60,000 shares of stock outstanding and net income of $984,800. Management has decided to spend 20 percent of the firm’s excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million in excess cash to pay a special dividend. Calculate Xtelʹs ex-dividend price.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).
- Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to repurchase shares at a current share price. How many shares will Xtel repurchase?Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid?Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? B
- Natsam Corporation has $25 million of excess cash. The firm has no debt and 20 million shares outstanding. The operating assets are expected to generate free cash flows of 18 million per year starting from next year till infinity. Its asset cost of capital is 10%. Natsam's board has decided to pay out all this cash as a one-time dividend three days later. (a) What is the current stock price (i.e., the cum-dividend price)? (b) What is the ex-dividend price in a perfect capital market? (c) If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? (d) In a perfect capital market, which policy do investors in the firm prefer?Getty Oil has 25 million shares outstanding and has a marginal corporate tax rate of 40%.Getty Oil announces that it will payout $40 million in cash to investors through a special dividend. Shareholders had previously assumed that Getty Oil would retain this excess cash permanently. What is the expected change in Getty Oil's share price upon this announcement? $0.64 $0.96 $1.56 None of these $0.56Company 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.)