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Question 16 of 23 An analyst is building a DCF for Anderson Plastics, a publicly traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Question: Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. component and in-the-money convertible preferred stock as straight equity with no debt component. ° о The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 milliono arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide equity value by a diluted share count of 120.2 million.

Question 16 of 23 An analyst is building a DCF for Anderson Plastics, a publicly traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Question: Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. component and in-the-money convertible preferred stock as straight equity with no debt component. ° о The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 milliono arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide equity value by a diluted share count of 120.2 million.

Essentials Of Investments
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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Question 16 of 23 An analyst is building a DCF for Anderson Plastics, a publicly traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Question: Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million.
Transcribed Image Text:Question 16 of 23 An analyst is building a DCF for Anderson Plastics, a publicly traded plastics manufacturer, with 120 million shares of common stock currently outstanding and trading at $85 per share. Using the unlevered approach, the analyst calculates enterprise value of $3 billion and net debt of $800 million ($1 billion in gross debt, less $200 million in cash). After checking her work, she realizes that she did not reflect the following information in her calculations: There is a $100 million convertible preferred stock on the balance sheet. There are 200,000 preferred shares outstanding, with a liquidation value of $500 per share, and each convertible into 4 shares of common stock at the option of the holder. The preferred shareholders receive no preferred dividends. Question: Which of the following is the most appropriate adjustment needed to reflect the preferred stock details above? To answer the question, treat out-of-the-money convertible preferred stock as a debt-equivalent claim with no equity component and in-the-money convertible preferred stock as straight equity with no debt component. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million.
component and in-the-money convertible preferred stock as straight equity with no debt component. ° о The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 milliono arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide equity value by a diluted share count of 120.2 million.
Transcribed Image Text:component and in-the-money convertible preferred stock as straight equity with no debt component. ° о The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should leave net debt unchanged at $800 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged at $800 milliono arrive at equity value per share, divide equity value by a diluted share count of 120.0 million. The analyst should increase net debt from $800 to $900 million. To arrive at equity value per share, divide equity value by a diluted share count of 120.8 million. The analyst should leave net debt unchanged. To arrive at equity value per share, divide equity value by a diluted share count of 120.2 million.
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