King, Incorporated, has debt outstanding with a face value of $5.5 million. The value of the firm if it were entirely financed by equity would be $24.7 million. The company also has 390,000 shares of stock outstanding that sell at a price of $51 per share. The corporate tax rate is 25 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Financial distress costs

King, Incorporated, has debt outstanding with a face value of $5.5 million. The value of the firm if it were entirely financed by equity would be $24.7 million. The company also has 390,000 shares of stock outstanding that sell at a price of $51 per share. The corporate tax rate is 25 percent. What is the decrease in the value of the company due to expected bankruptcy costs? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Financial distress costs

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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Jordan, Corp., has debt outstanding with a market value of $3 million. The value of the firmwould be $X million if it were entirely financed by equity. The company also has 360,000shares of stock outstanding that sell at $50 per share. The corporate tax rate is 30 percent. Theexpected bankruptcy cost is 0.9 million. If there is no other market friction like agencycost/benefit, what is X? handwrite please
An unlevered company operates in perfect markets (no taxes, no bankruptcy costs) and has expected operatingincome (EBIT) of $2,000,000 per year. The firm’s WACC is 8 percent. The firm has decided to change its capital structureto one that includes some debt. It will do so by issuing $10 million worth of debt with an interest rate of 6.5 percent, andusing the proceeds to repurchase outstanding stock.a. What is the market value and required return of this firm’s equity before the repurchase transaction, according toM.M.?b. What is the market value and required return of this firm’s equity after the repurchase transaction according toM.M.?
Baker Industries’ net income is $24000, its interest expense is $4000, and its tax rate is 45%. Its notes payable equals $24000, long-term debt equals $70000, and common equity equals $240000. The firm finances with only debt and common equity, so it has no preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet. What are the firm’s ROE and ROIC? Round your answers to two decimal places. Do not round intermediate calculations. ROE fill in the blank % ROIC fill in the blank %
The W.C. Pruett Corp. has $300,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 8%. In addition, it has $600,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $1.8 million, its average tax rate is 25%, and its profit margin is 2%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places.
Nikul
Baker Industries' net income is $21,000, its interest expense is $4,000, and its tax rate is 25%. Its notes payable equals $27,000, long-term debt equals $80,000, and common equity equals $240,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places. 8.75 % ROE: ROIC: %
Once Bitten Corp. uses no debt. The weighted average cost of capital is 9 percent. If the company's EBIT is $1,980,000 in perpetuity and there are no taxes, what is the company worth? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.) Note: For simplicity, in this chapter we typically assume that net capital spending equals depreciation, and net working capital remains constant. This means that EBIT (net of any taxes) will equal CFFA. Company's Value %24
Baker Industries' net income is $27, 000, its interest expense is $4,000, and its tax rate is 25%. Its notes payable equals $27, 000, long-term debt equals $75,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm's ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.
The W.C. Pruett Corp. has $1,000,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 8%. In addition, it has $600,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $5.4 million, its average tax rate is 25%, and its profit margin is 3%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places. TIE: × ROIC: %
Jordan, Corp., has debt outstanding with a market value of $3 million. The value of the firm would be $X million if it were entirely financed by equity. The company also has 360,000 shares of stock outstanding that sell at $50 per share. The corporate tax rate is 30 percent. The expected bankruptcy cost is 0.9 million. If there is no other market friction like agency cost/benefit, what is X? $19.2 million O $21 million O $5.7 million O $20.1 million
Baker Industries’s net income is $24,000, its interest expense is $5,000, and its tax rate is 25%. Its notes payable equals $27,000, long-term debt equals $75,000, and common equity equals $250,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC?
A firm is valued at $223, including $58 of cash. The firm is 45% debt financed and the remainder equity. Rather than pay the cash to shareholders, management decides to overpay for an acquisition. (This will increase firm revenues and management will get a nice bonus.) The firm uses $42 cash to buy $31 of corporate assets. (It overpaid for the assets.) What is the percentage decline in the value of the shareholders' claim? Give your answer to the nearest 0.1%. The answer is 9.0

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