Julie Smith, an analyst with ABC Company, has collected the following data about the firm: EBITDA = $3.5 million Tax rate=38% Debt outstanding = $2.5 million Cost of debt = 10.5% Cost of common equity = 14% Shares of stock outstanding = 800,000 BV of the stock per share = $12 The firm's product market is considered stable, and the firm expects no growth, and all earnings are paid out as dividends. Calculate the firm's earning per share, assuming depreciation & amortization costs of $500,000 per year

Julie Smith, an analyst with ABC Company, has collected the following data about the firm: EBITDA = $3.5 million Tax rate=38% Debt outstanding = $2.5 million Cost of debt = 10.5% Cost of common equity = 14% Shares of stock outstanding = 800,000 BV of the stock per share = $12 The firm's product market is considered stable, and the firm expects no growth, and all earnings are paid out as dividends. Calculate the firm's earning per share, assuming depreciation & amortization costs of $500,000 per year

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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You have been assigned to calculate the Weighted-Average-Cost-of-Capital (WACC) for your small firm The company has three sources of long-term capital. Its marginal tax rate is 21% First, there are 2,354.000 shares of common stock outstanding which are currently trading at $37.51 per share. You estimate that your firm hasa beta of 0.90, and that the long-term return in equity markets will be 11.50%. The current return on short-term T-Bills is 2.25% Second, the firm has 190,000 shares of preferred stock outstanding. These shares pay annual (perpetual) dividends of $7.00 per share, and are currently selling for $94.62. Third, there is an issue of 62.500 coupon bonds outstanding. These bonds have a face value of $1.000, mature in seventeen years, and pay 5,74% annual coupons These instruments are currently trading for $1,054.23. Based on the data, what portion of the market value of the firm's assets are financed with debt? Ⓒ$1.29% 38.27% 37.03% Q61.73% 42.73%
Pearson Motors has a target capital structure of 35% debt and 65% common equity, with no preferred stock. The yield to maturity on the company's outstanding bonds is 12%, and its tax rate is 25%. Pearson's CFO estimates that the company's WACC is 10.70%. What is Pearson's cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places. Hide Feedback Incorrect
Currently, Dividend Airlines is an unlevered firm and expects to generate $330 free cash flow each year in perpetuity. Its corporate tax rate is 37%. The firm is considering a capital structure to allow $361 of debt. The debt is assumed to be rolled over when it matures with the same amount of principal. Its cost of debt capital is 15%. Similar unlevered firms in the same industry have a cost of equity capital of 28%. Assume no agency costs nor default risk. What will the value of Dividend Airlines be after the change of capital structure?
Start-Up Industries is a new firm that has raised $360 million by selling shares of stock.Management plans to earn a 20% rate of return on equity, which is more than the 15% rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm. What will be Start-Up’s ratio of market value to book value? What will be Start-Up’s ratio of market value to book value if the firm can earn only a rate of return of 5% on its investments?
Eastern Electric currently pays a dividend of about $1.64 per share and sells for $27 a share. If its dividend growth rate is 7.0 %, and the payout ratio is 0.53 , what must be the ROE of the firm?
Crowley Company has a capital structure with 30% debt at a 9% interest rate. Its beta is 1.3, the risk-free rate is 1.5%, and the market risk premium is 8%. The company has no preferred stock. Its combined federal-plus-state tax rate is 25%. a. Calculate the company's cost of equity b. Calculate the company's weighted average cost of capital c. Calculate he the company’s unlevered cost of equity
Jenkins, Inc., has equity with a market value of $22.6 million and debt with a market value of $11.3 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company's equity is 1.11. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.50 % %
Ornaments, Inc., is an all-equity firm with a total market value of $652,000 and 31,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $93,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 40 percent. What is the EPS in a recession? $1.77 $2.30 $1.24 $1.41 $2.12
Company Zero is a non-listed private company with total equity of P10 million and debt of P4.5 million. The tax rate is 30%, risk-free rate is 6%. Company One is a publicly listed company which is in the same industry, product line and risk profile as Company Zero. It has a beta of 1.5, equity of P15 million and total debt of P6 million. Tax rate is 35%. The expected return of on a market portfolio is 12% and the risk-free return is 8%. a. Compute the beta for Company Zero. b. Compute the risk premium and the required return for Company One market portfolio.
Manshukh
Pastel Interiors is currently an all-equity firm that has an annual projected BIT of $136,900. The current cost of equity is 16.5% and the tax rate is 20%. The firm is considering adding $118,000 of debt with a coupon rate of 7.5% to its capital structure. The debt will be sold at par value. What is the value of the unlevered firm (pre-debt)? A $763,570 B $663.758 C $730,133 (D) $696,945 ) $630,570
Kirby Enterprises’s stock is currently selling for $32.45 per share, and the firm expects its per-share dividend to be $2.35 in one year. Analysts project the firm’s growth rate to be constant at 7.27%. Estimating the cost of equity using the discounted cash flow (or dividend growth) approach, what is Kirby’s cost of internal equity? 14.51% 13.78% 18.14% 19.59% Estimating growth rates It is often difficult to estimate the expected future dividend growth rate for use in estimating the cost of existing equity using the DCF or DG approach. In general, there are three available methods to generate such an estimate: • Carry forward a historical realized growth rate, and apply it to the future. • Locate and apply an expected future growth rate prepared and published by security analysts. • Use the retention growth model. Suppose Kirby is currently distributing 75% of its earnings in the form of cash dividends. It has also historically…

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