The following information refers to Questions No. 13 through 15:The financial manager of Apple Co. is evaluating Banana Co. as a possibleacquisition. Banana Co. is expected to produce annual after-tax operatingcash flows of PI,500,000. Apple Co. will assume P1,000,000 of BananaCo.'s long-term liabilities. Apple Co.'s weighted average cost of capital is12% and Banana Co.'s weighted average cost of capital is 15%. Theacquisition will be evaluated as a perpetuity. Apple Co.'s common stock istrading at P25 per share with 1,000,000 shares outstanding and a P/E ratio of10. Banana Co.'s stock is trading at P15 per share with 600,000 sharesoutstanding and a P/E ratio of 15.Based on this information, the estimated market value of the target-company is nearestP 9,000,000.b.13.a.P10,000,000.P11,000,000.P11,500,000.с.d. 14.If the exchange ratio is 0.8, then the amount that Apple Co. will bepaying for Banana Co. is nearestP10,000,000.b.a.P11,000,000.P12,000,000.d.с.P18,750,000.If the exchange ratio is 0.8, then the estimated post-merger earningsper share for Apple Co. is nearestP5.17.15.a.b.P1.77.c.Р3.10.d.P2.09.

When two different entities join forces to form a new, combined entity, it is called a merger.An…

ne financial manager of Apple Co. is evaluating Banana quisition. Banana Co. is expected to produce annual sh flows of P1,500,000. Apple Co. will assume P1,0 p.'s long-term liabilities. Apple Co.'s weighted average 2% and Banana Co.'s weighted average cost of cap Equisition will be evaluated as a perpetuity. Apple Co.'s ading at P25 per share with 1,000,000 shares outstanding

ne financial manager of Apple Co. is evaluating Banana quisition. Banana Co. is expected to produce annual sh flows of P1,500,000. Apple Co. will assume P1,0 p.'s long-term liabilities. Apple Co.'s weighted average 2% and Banana Co.'s weighted average cost of cap Equisition will be evaluated as a perpetuity. Apple Co.'s ading at P25 per share with 1,000,000 shares outstanding

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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Similar questions

Spellbound Solutions estimated future capital investment needs aré $ 1200m, and the estimated future net income is $1200m. If the company finances itself with 40 percent debt and 60 percent equity, how much in dividends can the company afford to pay? a. $0m b. $420m c. $480m d. $720m e. $900
Company Q's current return on equity (ROE) is 20%. It pays out 45 percent of earnings as cash dividends (payout ratio 0.45). Current book value per share is $56. Book value per share will grow as Q reinvests earnings. Assume that the ROE and payout ratio stay constant for the next two years. After that, competition forces ROE down to 10.0% and the payout ratio increases to 0.80. The cost of capital is 11.0%. Question: What is Q's stock worth per share? O 106.1 O 121.7 O 111.6 118.2 O 74.9
Assume that Hogan Surgical Instruments Company has $2,300,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 16 percent, but with a high-liquidity plan, the return will be 12 percent. If the firm goes with a short-term financing plan, the financing costs on the $2,300,000 will be 8 percent, and with a long-term financing plan, the financing costs on the $2,300,000 will be 10 percent. Compute the anticipated return after financing costs with the most aggressive asset-financing mix. Compute the anticipated return after financing costs with the most conservative asset-financing mix. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.
Dingo Corp is planning to pay out an annual dividend of $7 in perpetuity starting 8 years from now. If the market requires a return of 5.2% compounded quarterly on this investment, how much would a share of Dingo Corp cost today? O a. None of the options is correct O b. $94.40 Oc. $132.02 Od. $91.95 Oe. $87.32
Young & Liu Inc.'s free cash flow during the just-ended year (t = o) was $100 million, and FCF is expected to grow at a constant rate of 5% in the future. If the weighted average cost of capital is 15%, what is the firm's value of operations, in millions? a. $998 O b. $1,050 Oc$1,158 Od. $948 Oe. $1,103
Nnana Ltd currently retains 60% of its earnings which are R6 a share this year. It earns an ROE of 30%. Assuming a required rate of return of 22%, how much would you pay for Nnana Ltd based on the earning multiplier model? a. b. C. R78.92 R79.88 R82.88 d. R70.80
A firm has a profit margin of 2% and an equity multiplier of 2.0. Its sales are $100 million, and it has total assets of $50 million. What is its ROE? Find the following values and solve all the subparts. Compounding/discounting occurs annually. a. An initial $500 compounded for 10 years at 6%b. An initial $500 compounded for 10 years at 12%c. The present value of $500 due in 10 years at 6%d. The present value of $1,552.90 due in 10 years at 12% and at 6%e. Define present value and illustrate it using a time line with data from Part d. How arepresent values affected by interest rates?
A firm after -tax operating income ( after-tax EBIT)$90,000 in 2018. The value of depreciation is $8000 in 2018. Operating working capital increased by $20,000, and the firm purchased $30,000 of assets. The firm's free cash flow is Given the rate information in the table belowCan you calculate the maturity risk premium? 3 month T-bill = 2.5% (risk-free rate), 30 years Bonds-5.0%, 30year corporate bonds 7.0% Inflation Rate- 3.6% and the liquidity risk premium is 0.03%
Alpha feeds Co. is considering an expansion proposal to increase production. The proposal will require P18.1M for additional equipment and space requirements. The net receipts from this expansion are expected to be P4.5M per year for the next eight years, after which, the equipment will be sold for P0.78M. Using the IRR method, determine the acceptability of this proposal. The company’s MARR is 16%.Ans: i=18.8%
Equity holders’ investment in the firm is K100 million, and the beta of the equity is 0.6. if the T-bill rate 6 %, and the market risk premium is 8 %. What would be a fair annual profit?
Al-Shamukh Constructors Ltd. currently has sales of OMR 24 million a year, with a stock level of 25 percent of the sales. Annual holding cost for the stock 20 percent of valueOperating cost (excluding the cost of stocks) are OMR 15 million a year and other assets are valued at OMR 30 million. If the stocks levels are reduced to 20 percent of the sales, then what will be the improvement (or reduction) in the rate of return on asset in percentage?
Net Income for Company A is $200,000 in 2014, $300,000 in 2015, $400,000 in 2016, $500,000 in 2017, and $600,000 in 2018. The expected growth for all years after 2018 is 5%, the 90-Day T-Bill Rate is 20%, and the appropriate percentage above risk-free rate is 12%. Using this information, what is the reasonable value for Company A based on its future income stream for 2014 to 2018? A. 1,394,267.03 B. 4,394,267.03 A or B?

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