Northwestern Lumber Products currently has 16,500 shares of stock outstanding. Patricia, the financial manager, is considering issuing $129,000 of debt at an interest rate of 6.4 percent. Given this, how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $63,000? Ignore taxes. 14,337.71 shares 15,532.52 shares 12,289.47 shares. 13,381.87 shares 13,620.83 shares

Northwestern Lumber Products currently has 16,500 shares of stock outstanding. Patricia, the financial manager, is considering issuing $129,000 of debt at an interest rate of 6.4 percent. Given this, how many shares of stock will be outstanding once the debt is issued if the break-even level of EBIT between these two capital structure options is $63,000? Ignore taxes. 14,337.71 shares 15,532.52 shares 12,289.47 shares. 13,381.87 shares 13,620.83 shares

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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Seattle Adventures, Incorporated, is trying to decide between the following two alternatives to finance its new $17 million gaming center: a. Issue $17 million, 6% note. b. Issue 1 million shares of common stock for $17 per share with expected annual dividends of $1.02 per share. Required: 1. Assuming the note or shares of stock are issued at the beginning of the year, complete the income statement for each alternative. 2. Answer the following questions for the current year: (a) By how much are interest payments higher if issuing the note? (b) By how much are dividend payments higher by issuing stock? (c) Which alternative results in higher earnings per share?
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Kinston Enterprises has a debt obligation of $47 million that is due now. The market value of Kinston's assets is $102 million, and the firm has no other liabilities. Assume that capital markets are perfect and that Kinston has 5 million shares outstanding. If Kinston decides to sell new shares to raise capital to pay its debt obligation, how many shares will be issued? 5.0 million 4.3 million 4.7 million 4.0 million
You currently own 1,500 shares of JKL, Inc. JKL is an all equity that has 700,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $3,500,000. You believe that the JKL should finance 50 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 9 percent interest on their debt, answer the following questions. Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 9 percent interest. Part B. How many additional shares of JKL stock must you purchase (using the borrowed funds in Part A) to create the leverage on your own?
n Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O D. $1.143 O C. $1.500 SOE. $1.125 $0.875 $0.667 27/
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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $300,000 of debt at an interest rate of 12% and use the proceeds to repurchase 30,000 shares at $10 per share. Profits before interest are expected to be $130,000. What is the ratio of price to expected earnings for River Cruises before it borrows the $300,000? What is the ratio after it borrow?
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…
ABC Corporation has debt with a value of $100 million and common stock with a market value of $200 million .Investors expect 6% return on the debt and a a 15% return on the stock Assume perfect capital markets. Suppose ABC issues $100 million of new stock to buy back the debt. What is the expected return of the stock after this transaction? Suppose instead ABC corporation issues $50 million of new debt to repurchase stock. what is the expected return of the stock after this transaction,If the risk of the debt does not change? Would the expected return of the stock be higher or lower than in part (i)? If the risk of the debt increases,

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