million shares.a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places.b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.d. Assume now that the recap increases total firm cash flows, which adds $140 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.

million shares.a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places.b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.d. Assume now that the recap increases total firm cash flows, which adds $140 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity?Note: Enter your answers in billions rounded to 2 decimal places.

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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Is the formula for value of unlevered and value of levered firm always (free cashflow/ WACC - growth rate) What if in the question, the interest rate is given, is it the same as growth rate and is EBIT the same as free cash flow. What if EBIT is given in the question? Please help, very confused.
Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets. a.) How many shares will AC need to issue to fund the investment? b.) What is the new stock price? c.) After the transaction, what is the total value of existing shareholders' shares plus the cash payout? d.) What is the total value of the new shareholders' shares (assume that old shareholders do not purchase any of the new shares)? e.) What is the change in firm value due to this transaction? f.) Suppose AC used its cash to fund the investment instead, what is the total value of the shareholders' shares? Relevant information for AC Corp. is given below Cash 30 Shares outstanding 50 Current share price $6.60 Amount needed to…
3. Consider the following two statements: Statement 1: A firm can either pay its earnings to its investors, or it can keep them and reinvest them; Statement 2: According to the constant dividend growth model, the share price of the firm depends on the current dividend level, divided by the cost of equity capital plus the grow rate. Which one of the following combinations (true/false) relating to the above statement is correct? A. Statement 1 Statement 2 True True B. Statement 1 Statement 2 True False C. Statement 1 Statement 2 False False D. Statement 1 Statement 2 False True
A share of stock is worth the present value of all the cash flows an investor in said share of stock expects to receive. Group of answer choices True False
Answer the following a) When will the different DCF methods use the same discount rate? b) The cost of debt (ka) will change as the capital structure of a firm changes. Why or why not? c) Why does the cost of equity (k.) increase as the amount of debt in the capital structure of a firm increases? Why? d) Freebie Inc.'s common stock has a beta of 1.3. If the risk-free rate is 4.5% and the expected return on the market is 12%, what is its cost of equity capital? e) Why do branded food companies command the highest EBIT multiple (about 8) and transportation companies the lowest (about 3)? f) Should a firm use its cost of capital as a hurdle/discount rate to value all internal divisions? Why or why not? g) An option can have more than one source of value. Consider a mining company. The company can mine for ores today or wait another year (or more) to mine. What real options can you identify here? h) Do you consider dividend payments by the firm in calculating cash flows? Why or why not? i)…
Please provide a step-by-step solution with an explanation.
Which of the following statements is false? A. Basel II use the value at risk (VaR) with a one-year time horizon and a 99.9% confidence level for calculating capital for credit risk and operational risk. B. 20 BP = 0.2% C. Basel I is increasing the amount of capital that banks are required to hold and the proportion of that capital that must be equity. D. Model-building approach is a model for the joint distribution of changes in market variables and using historical data to estimate the model parameters.
Attempts Keep the Highest / 3 6. Expected returns, dividends, and growth The constant growth valuation formula has dividends in the numerator. Dividends are divided by the difference between the required return and dividend growth rate as follows: Po = D₁ (Tx-g) Which of the following statements is true? Increasing dividends will always increase the stock price. ○ Increasing dividends will always decrease the stock price, because the firm is depleting internal funding resources. Increasing dividends may not always increase the stock price, because less earnings may be invested back into the firm and that impedes growth. Walter Utilities is a dividend-paying company and is expected to pay an annual dividend of $2.85 at the end of the year. Its dividend is expected to grow at a constant rate of 7.00% per year. If Walter's stock currently trades for $25.00 per share, what is the expected rate of return? 1,420.00% 710.65% 18.40% 791.20% Which of the following statements will always hold…
Answer this question based on the dividend growth model. If you expect the required rate of return to increase across the board on all equity securities, then you should also expect: A decrease in all stock values. All stock values to remain constant. An increase in all stock values. An increase or a decrease in all stock values. None of the above.
A6) Finance 1. What of the following statements is not correct? _____ the higher the sales growth rate g is, the larger AFN will be—other things held constant. The higher the capital intensity ratio, the larger AFN will be—other things held constant. The higher the firm’s spontaneous liabilities, the smaller AFN will be—other things held constant. The higher the payout ratio, the larger AFN will be if other things held constant.
Question 1. Let St be the current price of a stock that pays no dividends. a)Let rbid be the interest rate at which one can invest/lend money, and roff be theinterest rate at which one can borrow money, rbid≤roff. Both rates are continuously compounded. Using arbitrage arguments, find upper and lower bounds for the forwardprice of the stock for a forward contract with maturity T > t. b)How does your answer change if the stock itself has bid price St,bid and offer price St,off?

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