KMS corporation has assets of $500 million, $50 million of which are cash. It has debt of $200 million. If KMS repurchases $20 million of its stock, what changes will occur on its balance sheet? What will its new leverage ratio be?
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- The Leap Corporation expects next year’s net income to be P15 million. The firm’s debt ratio is currently 40%. Leap has P12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Leap's dividend payout ratio be next year?Milton Industries expects free cash flows of $19 million each year. Milton's corporate tax rate is 22 %, and its unlevered cost of capital is 13%. Milton also has outstanding debt of $73.37 million, and expects to maintain this level of debt permanently. a. What is the value of Miton Industries without leverage? b. What is the value of Milton Industries with leverage? Cam a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is 5 million (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $million. (Round to two decimal places)Cliff Corp (CC) has assets of $300 million including $25 million in cash. CC has 1 million share of stock outstanding and $70 million of debt. Assume capital markets are perfect. What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18 million in dividends, then what is the new ex- dividend share price? If instead of paying the dividend CC repurchases $18 million of stock, then what will be the new share price? What is the new debt-to-equity ratio after the payout?
- Letex Corp. is an all-equity company. Its assets will be worth $550 million (market value) in one year if the economy is strong, but only $350 million if the economy is weak. Both events are equally likely. The market value of the company's assets is $400 million today. The expected return for the company's stock without leverage is __%Milton Industries expects free cash flows of $14 million each year. Milton's corporate tax rate is 21%, and its unlevered cost of capital is 14%. Milton also has outstanding debt of $25.57 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
- The present value of JECK Co.’s expected free cash flows is $100 million. If JECK has $30 million in debt, $6 million in cash, and 2 million shares outstanding, what is its share price?A company has $200 billion of sales and $10 billion of net income.Its total assets are $100 billion, financed half by debt and half bycommon equity. What is its profit margin? (5%) What is its ROA?(10%) What is its ROE? (20%) Would ROA increase if the firm usedless leverage? (Yes) Would ROE increase? (No)According to GAAP, your firm has equity worth $6billion, debt worth $4 billion, assets worth $10 billion. The market values your firm's 100 million shares at $75 per share and the debt at $4 billion. What is the market value of your assets?
- MNO Oil has assets with a market value of $600 million, $64 million of which are cash. It has debt of $250 million, and 20 million shares outstanding. Assume perfect capital markets. If MNO Oil distributes the $64 million as a dividend, then its stock price after the dividend will be closest to:X Corporation has total assets of P100 million. Earnings before interest and taxes were P20 million and the tax rate was 35%. Given are the following leverage ratios and corresponding interest rates. 1. 2. 3. 4. 5. Leverage (Debt / Total Assets) 0% 10 30 50 60 Interest Rate on Debt - 16 % 16 18 21 Calculate Litton's rate of return on equity and WACC for each amount of debt. What is the optimal capital structure? If you were the finance manager, which capital structure would you choose? Justify.Coca-Cola Inc. (KO) has FCFF of $9.205 billion and FCFE of $7.554 billion. Coca-Cola’s WACC is 7.0 percent, and its required rate of return for equity is 8.5 percent. FCFF is expected to grow forever at 2.07 percent, and FCFE is expected to grow forever at 4.81 percent. Pfizer has debt outstanding of $52.867 billion. What is the total value of Coca-Cola’s equity using the FCFF valuation approach? B. What is the total value of Coca-Cola’s equity using the FCFE valuation approach
