Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the following questions. Inputs $210 million Value of operations (Vpre-IPO) Number of existing shares (nExisting) Target net proceeds Flotation costs (F) 12 million $30 million 7% a. What is the intrinsic stock price per share before the IPO? Stock price before IPO = PPre-IPO = b. Given the target net proceeds, what amount of gross proceeds are required? Gross proceeds = million

Lingadalli Corporation (LC) is condsidering an IPO. LC has 12 million shares of common stock owned by its founder and early investors. LC has no preferred stock, debt, or short-term investments. Based on its free cash flow projection, LC's intrinsic value of operations is $210 million. LC wants to raise $30 million (net of flotation costs) in net proceeds. The investment bank charges a 7% underwriting spread. All other costs associated with the IPO are small enough to be neglected in this analysis and all shares sold in the IPO will be newly issued shares. Answer the following questions. Inputs $210 million Value of operations (Vpre-IPO) Number of existing shares (nExisting) Target net proceeds Flotation costs (F) 12 million $30 million 7% a. What is the intrinsic stock price per share before the IPO? Stock price before IPO = PPre-IPO = b. Given the target net proceeds, what amount of gross proceeds are required? Gross proceeds = million

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

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Cede & Co can borrow at 11 percent. Cede currently has no debt, and the cost of equity is 12 percent. The current value of the firm is $664,000. The corporate tax rate is 30 percent. Required: What will the value be if Cede borrows $223,000 and uses the proceeds to repurchase shares?
Pettit Printing Company (PPC) has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $12.68 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 65% (based on market values) or decreasing it to 35%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 12% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 9% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change. PPC expects no growth in its EBIT, so gL is zero. Its current cost of equity, rs, is 14%. If it increases leverage, rs will be 16%. If it decreases leverage, rs will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate…
Farmington Company can borrow at 7.05 percent. The company currently has no debt and the cost of equity is 11.45 percent. The current value of the firm is $660,000. The corporate tax rate is 23 percent. What will the value be if the company borrows $375,000 and uses the proceeds to repurchase shares?
Kaur Resources is an unlevered firm with a total market value of $460,000 and 10, 000 shares of stock outstanding. The firm has expected EBIT of $22, 000 if the economy is normal and $35, 000 if the economy booms. The firm is considering a bond issue of $73, 600 with an attached interest rate of 6.8 percent. The bond proceeds will be used to repurchase shares. The tax rate is 21 percent. What will be the earnings per share after the repurchase if the economy is normal? Multiple Choice $2.02 $1.70 $1.60 $2.62 $1.34
Qlink ltd is involved in manufacturing of fast -moving consumer goods.The firm is currently an all -equity firm with 30 million shares outstanding and stock price of Kshs.10 per share.The firm plans to announce that it will borrow Ksshs.400 million and use the funds to repurchase shares. The firm will pay interest only on this debt and has no plans to change its debt holding in future. The prevailing corporate tax rate is 30%.(i)What is the market value of the firm's existing existing assets before the announcement?(ii)What is the market value of the firm's assets(including tax shields) just after the debt is issued but before the shares are repurchased?(iii)What is the firm's share price just before the share repurchase?However many shares will Qlink Ltd repurchased?(iv) What are Qlink Ltd's market value balance sheet and share price after share repurchase?
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Kennedy Limited is an all-equity publicly listed firm with 600,000 shares currently on issue trading at $20 per share and is expected to generate $1,800,000 in EBIT p.a. in perpetuity. They are considering immediately repurchasing one third their equity at the current market price and replacing this with debt with an interest cost of 4% per annum. Assume that Kennedy Limited operate in a perfect capital market with no taxes, information costs, transaction costs etc. a) Demonstrate the impact of the change in capital structure on the (i) Net Income, (ii) ROE and (iii) ROA for Kennedy Limited. b) For what value of EBIT will ROE be unaffected by Kennedy Ltd’s decision to repurchase shares?
Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 35 percent debt. There are currently 5,000 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes. a. Rebecca owns $10,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. b. What would her cash flow be under the new capital structure assuming that she keeps all of her shares? Note: Do not round intermediate calculations and round your answer to 2 decimal places, 32.16. c. Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow. Note: Do not round intermediate calculations and round your answer to the…
Special Engineering Plastics carries no debt on its books. It has $100 million long term financing consisting entirely of equity. The firm wishes to raise another $50 million for expansion through one of the two choices, (a), it can raise all additional funds by selling ordinary shares at $50 per share, and, (b) it can raise additional funds by selling debt at 12% pa interest. The firm has earnings before interest and taxes of $15 million that are expected to rise to $27 million with expansion. The firm’s tax rate is 40% and 2,000,000 ordinary shares are presently outstanding. Find out EPS under each option. The firm has made further calculations. It finds that with equity financing, EPS falls to zero at EBIT = 0 and that for debt financing, EPS falls to zero with EBIT = $6,000,000. Draw an EBIT-EPS chart and interpret it.

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