Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in business for one moreyear. The economy is has recently been expanding. According to consensus forecasts, the probability of the continuation of thecurrent expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, each firm willgenerate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before interest and taxesof £800,000. Phil's debt obligation requires the firm to pay £750,00 at the end of the year. Costas's debt obligation requires thefirm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is the marketvalue of (i) Phil plc and (ii) Costas plc?Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.None of the aboveb(i1) £1,321,739 and (i) £1,153,435(1) £1,530,435 and (i) £1,530,435d(1) £1,321,739 and (il) £1,321,739(1) £1,530,435 and (ii) £1,321,739UnansweredSave

in this we have to calculate expected profit.

Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in busin year. The economy is has recently been expanding. According to consensus forecasts, the probability of the contia current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, e generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before in of £800,000. Phil's debt obligation requires the firm to pay £750,00y at the end of the year. Costas's debt obligation firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is value of (i) Phil plc and (ii) Costas plc? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. None of the above

Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in busin year. The economy is has recently been expanding. According to consensus forecasts, the probability of the contia current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, e generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before in of £800,000. Phil's debt obligation requires the firm to pay £750,00y at the end of the year. Costas's debt obligation firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is value of (i) Phil plc and (ii) Costas plc? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. None of the above

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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Your company doesn't face any taxes and has $755 million in assets, currently financed entirely with equity. Equity is worth $50.50 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below: State Recession Average Boom Probability of State .20 .60 .20 Expect EBIT in State $105 million $180 million $240 million The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 10 percent yield on perpetual debt in either event. What will be the standard deviation in EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)
Holt Enterprises recently paid a dividend, D0, of $2.00. It expects to have nonconstant growth of 23% for 2 years followed by a constant rate of 3% thereafter. The firm's required return is 17%. How far away is the horizon date? The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the beginning of Year 2. The terminal, or horizon, date is the date when the growth rate becomes constant. This occurs at the end of Year 2. The terminal, or horizon, date is infinity since common stocks do not have a maturity date. The terminal, or horizon, date is Year 0 since the value of a common stock is the present value of all future expected dividends at time zero. The terminal, or horizon, date is the date when the growth rate becomes nonconstant. This occurs at time zero. What is the firm's horizon, or continuing, value? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the firm's intrinsic value today, ?…
Pls show proper steps correctly with explanation.
Tesla Inc (TSLA) has been growing at a rate of 33% per year in recent years. This same supernormal growth rate is expected to last for another 4 years, during which it will not pay dividend. It will start paying a dividend of $5 a share in 5th year. After this, earnings and dividends are expected to grow at a 4 percent annual rate indefinitely. Investors currently require a rate of return of 9 percent. What should be the current market price per share of its stock? O 67.29 O 70.84 77.92 O 63.75 O 60.21 12
Phil plc and Costas plc are identical firms except that Costas is more levered. Both companies will remain in business for one more year. The economy is has recently been expanding. According to consensus forecasts, the probability of the continuation of the current expansion is 60% for the next year, and the probability of a recession is 40%. If the expansion continues, each firm will generate profit before interest and taxes of £2 million. If a recession occurs, each firm will generate profit before interest and taxes of £800,000. Phil’s debt obligation requires the firm to pay £750,000 at the end of the year. Costas’s debt obligation requires the firm to pay £1 million at the end of the year. Neither firm pays taxes. Assume a discount rate of 15 per cent. What is the market value of (i) Phil plc and (ii) Costas plc? a None of the above b (i) £1,321,739 and (ii) £1,153,435 c (i) £1,530,435 and (ii) £1,530,435 d (i) £1,321,739 and (ii) £1,321,739 e (i)…
Terrell Enterprises recently paid a dividend, D0 of $1.50. It expects to have nonconstant growth of 25% for 2 years followed by a constant rate of 6% thereafter. The firms required return is 12%. What is the firms intrinsic value today?
Laurel Enterprises expects earnings next year of $4.43 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 11%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 4.4% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? The current stock price will be $ (Round to the nearest cent.)
Over the next three years, the company Paris is expected to pay dividends as follows: Time 1 2 3 Dividend 15 20 24 Thereafter, Paris dividends are expected to grow at a constant rate of 5% per year. Paris should reinvest 40% of its benefits from T = 2. The expected return regarding Paris stocks is 15% Calculate the stock price at the end T 2. If Paris keeps 40% of its EPS to reinvest in new projects, what must be the retum rate of new investments in order to achieve the dividend growth of 5%? What is the stock price today? If Paris changes its dividend distribution policy and decides to distribute all its benefits to its shareholders from T 3, what would be the impact of this policy on the stock price? Comment on the result.

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