No AI ANSWER Question:8-66Rally, Inc., is an all-equity firm with assets worth $25 billion and 10billion shares outstanding. Rally plans to borrow $5 billion and usefunds to repurchase shares. Rally's corporate tax rate is 25%, andRally plans to keep its outstanding debt equal to $5 billionpermanently.Without the increase in leverage, what would be Rally's share price?

Step 1: Determine the current value of the firm's equity (equal to the value of its assets for an…

Answered: Question:8-66 Rally, Inc., is an…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 1P

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6 Please show work in Excel format, thanks!
An unlevered firm has expected earnings of $4,780,000 and a market value of equity of $56,478,000. The firm is planning to issue $22,591,200 of debt at 5.1 percent interest and use the proceeds to repurchase shares at their current market value. Ignore taxes. What will be the cost of equity after the repurchase? 10.71% 10.58% 10.45% 10.32% 10.19%
← Unida Systems has 35 million shares outstanding trading for $12 per share. In addition, Unida has $95 million in outstanding debt. Suppose Unida's equity cost of capital is 16%, its debt cost of capital is 8%, and the corporate tax rate is 38%. a. What is Unida's unlevered cost of capital? b. What is Unida's after-tax debt cost of capital? c. What is Unida's weighted average cost of capital? a. What is Unida's unlevered cost of capital? Unida's unlevered cost of capital is%. (Round to two decimal places.)
6
A. Suppose that Taco John’s equity is currently selling for $55 per share, with 4million shares outstanding. If the firm also has 17 thousand bonds outstanding,which are selling at 94 percent of par, what are the firm’s current capital structure weights? Use the capital structure weights equation:B. Suppose that Taco John’s is considering an active change to their capital structure so as to have a D/E of 0.4, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?
13. An all-equity firm currently has 1,000,000 shares outstanding with a market price of $10. The firm is considering issuing $4,441,345 in debt into perpetuity. The firm has estimated the total cost of debt (including bankruptcy and agency costs) is equal to $753,768. The current corporate tax rate TC = 30%. What is the value of the firm if they issue the debt assuming the trade-off theory holds?
Rally inc. Is an all equity firm with assets worth $25 billion....
K1
The value of firm is equal to value of debt plus value of equity. Assume the firm has 4 million shares outstanding currently selling at $25 per share, and it decides to issue 50 million in debt to repurchase 2 million shares, how would this affect the value before/ after.
1.Cost of internal equity (new dividend) Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $47.00 per share. The firm's recent dividend was $2.00 with an annual growth rate of 5.0% thereafter indefinitely (constant growth). If the firm issues new stock, the flotation costs would equal 10.0% of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of internal equity?
2. Major Bagel is an all-equity firm. It has 20 million outstanding shares currently priced at $25 per share. Its cost of equity is 18%. Management considers borrowing $100 million at a cost of 8% per annum. They will use the money to buy back stocks. Major Bagel pays no taxes. a. After the buy back, what will be the cost of equity? b. What will be the weighted average cost of capital of the Major Bagel?
A. Suppose that Chi Chili’s equity is currently selling for $40 per share, with 2.5 million shares outstanding. If the firm also has 100,000 bonds outstanding, which are selling at 94 percent of par, what are the firm’s current capital structure weights? B. Suppose that Chi Chili’s is considering an active change to their capital structure so as to have a D/E of 0.60 OR 60%, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?

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