Question:A firm has 10 million sharesoutstanding with a marketprice of $20 per share. Thefirm has $25 million in extracash (short-term investments)that it plans to use in astock repurchase; the firmotherhasnofinancialinvestments or anydebt. Whatoperation,is the firm'sshares willrepurchase?value ofandhow manyremain after the

We have given, Market Price per share = $20Total number of Shares Outstanding = 10 millions Total…

Answered: Question: A firm has 10 million shares…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Which would increase a firm's return on equity? A. Issuance of 12% bonds and investing the proceeds to earn more than 12%. B. Increasing the size of cash dividends to shareholders. C. Increase in the firm's price earnings ratio D. Increase in market price of the firm's ordinary share E. none of the above
Cliff Corp (CC) has assets of $300 million including $25 million in cash. CC has 1 million share of stock outstanding and $70 million of debt. Assume capital markets are perfect. What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18 million in dividends, then what is the new ex- dividend share price? If instead of paying the dividend CC repurchases $18 million of stock, then what will be the new share price? What is the new debt-to-equity ratio after the payout?
Let us suppose, a company has 1 million outstanding shares of stock, each valued at 25$. Let us also suppose that the replacement cost of its physical capital stock is 18 million $. a. Should this firm invest in more physical capital?b. Would your answer in part (a) change, if the replacement cost of its physical capital stock changes to 28 million $?
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Stepwise pls and correct only The firm is an all-equity firm with assets worth $500 million and 100 million shares outstanding. It plans to raise $200 million and use these funds to repurchase shares. The firm’s marginal corporate tax is 21%, and it plans to keep its outstanding debt equal to $200 million permanently. What is the value of equity for the leveraged firm? Assuming no financial distress or bankruptcy cost. A) $542 million B) $458 million C) $342 million D) $300 million E) $158million
A1. Payout policy (Answer all parts of this question.) (a) , What is the main theorem of Modigliani and Miller regarding the payout policy of firms? Explain. 1 (b) List four assumptions that must hold for the Modigliani-Miller theorem to be valid. (c) Consider a company that has 100 million shares outstanding. The market value of the company is currently at GBP 5 billion. Last year, the company paid out an annual dividend of GBP 2 per share. This year, the company intends to double the dividend to shareholders, but since the company has not enough cash, the company intends to raise the additional money required to pay the dividend in rights issue. i. ( If the price of a new share offered is GBP 25, what is the fair value of a right to buy a new share? Hint: The company first pays the dividends, and then raises the capital. ii. ( ) Contrary to theory, however, as soon as the company announces the rights issue, the share price drops. Why? Think of a reason why this transaction, i.e.,…
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(20) Hewlard Pocket's market value balance sheets illustrate the effects of dividends versus repurchases. Original balance sheet $150,000 Cash Debt $0 Shares outstanding 100,000 Other assets 950,000 Equity 1,100,000 Price per share $11 Value of firm $1,100,000 Value of firm $1,100,000 Pocket needs to hold on to $50,000 of cash for a future investment. Nevertheless it decides to pay a cash dividend of $2 per share, and to replace the cash with a new issue of shares. Suppose that the new shares are sold in a public issue at $9.5 a share. After the dividend is paid and the new stock is issued, what will be the wealth of the existing investors including the dividend payment?
1. ABC Corporation pays dividends of P10 per share every year. If the growth rate of the equity is expected to be zero, then?a. Dividends would continue to stay at P10 per share.b.The value of equity would remain the same every year.c. All earnings are paid out.d. All of the above2. Which lists the financing options from less to more risky?a.Ordinary shares, BondsB. Preference shares, Ordinary sharesC. Externally financed equity, Internally financed equityD. Equity, Debt3. If the lease agreement involves a seller-lessee and a buyer-lessor, the lease agreement is called a. a sales and leaseback agreementb. a leverage leasec. tripartite lease agreementd. finance lease4. ABC has profits of P100,000, P200,000, P250,000 and P200,000 during the last four quarters. It paid dividends of P0.30, P0.60, P0.75 and P2.20. Their dividend policy would most likely be a. Constant dividend per share plus extrab. Constant percentage of net earningsc. Constant percentage of net earnings plus extrad.…
A firm has 5 million shares outstanding with a market price of $35 per share. The firm has $10 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places. $ million How many shares will remain after the repurchase? Round your answer to the nearest whole number. shares
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