Please correct answer and don't used hand raiting It is January 2nd. Senior management of Digby meets to determine their investment plan for the year. They decide tofully fund a plant and equipment purchase by issuing 50,000 shares of stock plus a new bond issue. The CFO happilynotes this will raise their Leverage (=assets/equity) to a new target of 2.7. Assume the stock can be issued at yesterday'sstock price ($30.39). Which of the following statements are true? Check all that apply.Select: 3Digby will issue stock totaling $1,519,500Total investment for Digby will be $4,102,650The Digby bond issue will be $2,583,150The Digby Working Capital will be unchanged at $13,661Total Assets will rise to $214,617,000Long term debt will increase from $81,253,490 to $82,772,990

Final Answers:Digby will issue stock totaling $1,519,500: TrueTotal investment for Digby will be…

Answered: It is January 2nd. Senior management of…

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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Lancaster Corporation, an investment banking company, often has extra cash to invest. Suppose Lancaster buys500 shares of Knight Corporation stock at $40 per share, representing less than 5% of Knight’soutstanding stock. Lancaster expects to hold the Knight stock for one month and then sell it.The purchase occurs on December 15, 2018. On December 31, the market price of one share ofKnight stock is $47 per share.Requirements1. What type of investment is this for Lancaster? Give the reason for your answer.2. Record Lancaster’s purchase of the Knight stock on December 15 and the adjustment tomarket value on December 31.3. Show how Lancaster would report this investment on its balance sheet at December 31 andany gain or loss on its income statement for the year ended December 31, 2018
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A friend tells you that you should buy AST Company stock as it is a "great deal." It is January 1, 2020 and the stock is trading at $25 per share. You obtained the financial statements for Leclerc and determined the following: - Book value is $12 per share as of December 31, 2019. - Earnings for 2019 were $4.0 per share. - Earnings are expected to grow at 20% for the next four years. - Dividend payout is 40%. - Residual income is expected to be zero from 2021 onwards. - Cost of equity capital is 15%. Determine, using the residual income method, whether you should buy AST stock as of January 1, 2020.
Cabaret Co. has issued stock options (warrants) to its employees, some of which will come to maturity this year. At fiscal year end the firm expects the options to be exercised on 48,750 shares at the price of $25.50 per share. Currently, the firm has 1,280,400 shares outstanding, will earn $2,800,000 in net income, and has a market share price of $32.00. After the stock options are exercised, what will the be the effect of Earnings Per Share (EPS)?
Penny Arcades, Incorporated, is trying to decide between the following two alternatives to finance its new $35 million gaming center. a. Issue $35 million, 7% note b. Issue 1 million shares of common stock for $35 per share with expected annual dividends of $2.45 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share? (Enter…
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Seattle Adventures, Incorporated, is trying to decide between the following two alternatives to finance its new $17 million gaming center: a. Issue $17 million, 6% note. b. Issue 1 million shares of common stock for $17 per share with expected annual dividends of $1.02 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share?
Analysts forecast Power Puff to generate $110 million of free cash flow at the end of the current year. (Assume that cash flows occur on December 31 and today is January 1.) Analysts also expect Power Puff's cash flow to grow at 2% in perpetuity. Power Puff has no debt and its shareholders require a return of 11.5%. There are 175 million shares outstanding and the shares trade for $6.62. Power Puff has announced a stock repurchase. It intends to buy shares at a price of $7 per share. The repurchase will be debt financed. Assume that Power Puff is aiming to maintain a debt to value ratio of 40%. The cost of debt is 5.25% and the tax rate is 30%. A) What is the Value of the Levered company? (Select from A, B, C) B) What will the stock price be after the repurchase? (Select from D, E, F) Select 2 correct answer(s) A) $1321 M B) $1240 M C) $1559 M D) $7.15 E) $6.91 F) $6.62
An entity has an investment which analyst think that there will be a 40% probability that the expected return will be 10%; 50% chance it will be 6% and 10% chance that the return will be 20 %. Calculate the expected returns Calculate the standard deviation An entity has a stock valued at $15 on December 31, 2019. On December 31, 2020, the stock was priced at $10 per share, During the period, directors declared and paid final dividends of $6 for each ordinary share held. What is the shareholders’ return
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The Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment rate and the return on reinvested earnings to remain constant. The required return on equity is 12%. What is the value of the firm today, if it 1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years? 2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)? Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this…
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