Monroe Inc is an all-equity firm with 1,000,000 shares outstanding. It has $5,000,000 of EBIT, and EBIT is expected to remain constant in the future. Thecompany pays out all of its earnings, so earnings per share (EPS) equal dividends per share (DPS), and its tax rate is 25%. The company is consideringng $10,000,000 of 8.00% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk premium is 5.0%, and the firm'sbeta is currently 10. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at theprice that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/r, because EPS = DPS.)$43.23O$36.31Oc$40.52Od $30.55$25.66

Earnings per share (EPS) shows how much of a company's profits are distributed to each outstanding…

Monroe Inc is an all-equity firm with 1,000,000 shares outsta company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (D ng $10,000,000 of Boo% boods and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk prem beta is currently L. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/rs because EPS = DPS.) # 563.23 O & $36.31 OCHES Od $30.55 $25.66

Monroe Inc is an all-equity firm with 1,000,000 shares outsta company pays out all of its earnings, so earnings per share (EPS) equal dividends per share (D ng $10,000,000 of Boo% boods and using the proceeds to repurchase stock. The risk-free rate is 6.0%, the market risk prem beta is currently L. However, the CFO believes the beta would rise to 1.255 if the recapitalization occurs. Assuming the shares could be repurchased at the price that existed prior to the recapitalization, what would the price per share be following the recapitalization? (Hint: Po EPS/rs because EPS = DPS.) # 563.23 O & $36.31 OCHES Od $30.55 $25.66

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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Astromet is financed entirely by common stock and has a beta of 1.50. The firm pays no taxes. The stock has a price-earnings multiple of 14.0 and is priced to offer a 10.6% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.2%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e., stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Req A to E Req F to G2…
Driver Products recently paid its annual dividend of $2, and reported an ROE of 15%. The firm pays out 50% of its earnings as dividends. The stock has a beta of 1.44. The current risk-free rate is 2.5% and the market return is 11%. Assuming that CAPM holds, what is the intrinsic value of this stock?
Air Asia has 1.4 million shares of stock outstanding. The stock currently sells for $20 pershare. The firm’s debt is publicly traded and was recently quoted at 93% of face value. Ithas a total face value of $5 million, and it is currently priced to yield 11%. The risk-freerate is 8%, and the market risk premium is 7%. You’ve estimated that Air Asia has a betaof 0.74. If the corporate tax rate is 34%, what is the Weighted Average Cost of Capital ofAir Asia?
Incom Corporation's most recent dividend D0 was $1.8, and thanks to their exclusive contract to manufacture and T-65B's, they anticipate constant growth at a rate of 4.3 percent into the future. Assuming you won't pay more per share than a stock is worth, what is the fair value of the stock if the required return (rs) = 10.2 percent?
The stock of Matrix Computing sells for $65, and last year’s dividend was $2.53. Security analysts are projecting that the common dividend will grow at a rate of 9% a year. A flotation cost of 12% would be required to issue new common stock. Matrix’s preferred stock sells for $42.00, pays a dividend of $3.32 per share, and new preferred stock could be sold with a flotation cost of 10%. The firm has outstanding bonds with 25 years to maturity, a 15% annual coupon rate, semiannual payments, $1,000 par value. The bonds are trading at $1,271.59. The tax rate is 20%. The market risk premium is 5.5%, the risk-free rate is 7.0%, and Matrix’s beta is 1.2. In its cost-of-capital calculations, Matrix uses a target capital structure with 40% debt, 10% preferred stock, and 50% common equity. b. Calculate the cost of new stock using the dividend growth approach.
Tyres Limited has asked you to calculate the return on its ordinary shares to help in its calculation of its weighted average cost of capital (WACC). Tyres has 10,000,000 ordinary shares on issue that have a beta of 1.63. The last dividend was $9.56, and dividends have been growing at 2.7% per year. If the risk-free rate is 1.98% and the return on the market is 9.1%. What is the required return on one of Tyres’s ordinary shares?.
Caspian Water needs to raise $59.00 million by issuing additional shares of stock. If the market estimates Caspian Water will pay a dividend of $2.12 next year (D1 2.12), which will grow at 3.99% forever and the cost of equity to be 12.82%then how many shares of stock must the firm sell? 1 ) None of the answers in this list is within 100 shares of the correct answer 2) 312,890 3) 2,457,406 4 ) 4,128,970 5 ) 915,939 6 ) 2.975,934
Marigold Ltd. just paid a dividend of $2.00 per share, which is expected to grow at a constant rate of 6.0 percent indefinitely. The T-bill rate is 2.9 percent and the risk premium of Marigold Ltd. is 6.4 percent Calculate Marigold's current share price. $60.61 $62.36 $64.24 O $66.24
Stock in Daenerys Industries has a beta of 0.97. The market risk premium is 9.5 perc and T-bills are currently yielding 4 percent. The company's most recent dividend was per share, and dividends are expected to grow at a 6 percent annual rate indefinite the stock sells for $38 per share, what is your best estimate of the company's co equity?

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