rving Corp. 1s currently all equity is considering a $555000 debt issue maintain a debt equity ratio of 0.40 in the capital structure following M&M Proposition I. The interest rate on debt is 10%%. There are currently 75000 shares putstanding. The Earnings before interest and taxes is expected to remain constant at 900000S. The debt proceeds are used to repurchaie the shares. a. Compute the current EPS and EPS after change in the capital structure if the firm has a constant calculating share price and number of share раy out rate of 75%. Show the steps o repurchases under proposed capital structure. b. If you own 4440 worth of stock in this company what is your total cash flow if the pay- out rate under the current capital structure? C. Compute the number of shares repurchased from you and the total cash flow you will receive under the new capital structure?

rving Corp. 1s currently all equity is considering a $555000 debt issue maintain a debt equity ratio of 0.40 in the capital structure following M&M Proposition I. The interest rate on debt is 10%%. There are currently 75000 shares putstanding. The Earnings before interest and taxes is expected to remain constant at 900000S. The debt proceeds are used to repurchaie the shares. a. Compute the current EPS and EPS after change in the capital structure if the firm has a constant calculating share price and number of share раy out rate of 75%. Show the steps o repurchases under proposed capital structure. b. If you own 4440 worth of stock in this company what is your total cash flow if the pay- out rate under the current capital structure? C. Compute the number of shares repurchased from you and the total cash flow you will receive under the new capital structure?

Fundamentals of Financial Management (MindTap Course List)

15th Edition

ISBN:9781337395250

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter14: Capital Structure And Leverage

Section: Chapter Questions

Problem 11P: RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and...

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Estimate the Cost of Capital for Company XYZ based on the information below. $50.00 $1.60 Stock price: Dividend: Beta: 1.29 Shares outstanding: 5-year dividend growth: 100,000,000 7.55% Risk-free rate: 0.60% Market risk premium: 7.00% Debt Information (bonds outstanding) Book Value "Quoted Price" Maturity YTM $800,000,000 3/15/2025 4.0% 99.00 $200,000,000 2/1/2027 4.5% 130.00 $500,000,000 9/1/2042 5.0% 95.00 $900,000,000 10/15/2044 5.5% 90.00
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Stock price Shares outstanding (millions) Mkt value Debt (millions) Capitalization (book value) Debt Equity Beta Target D/E Cost of debt Market Info Risk-free rate Comparable Company 10 1,000 10,000 20.00% 80.00% 1.40 n/a 6.50% 4.00% Market Risk Premium 5.00% Company A n/a n/a n/a 25.00% 75.00% n/a 0.80 5.00% Required: Use the relevant Comparable Company and Company A to calculate the WACC for Company A Assume the tax rate for both companies is 30%.
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19) You are given the following information regarding UFSK limited, a listed entity. I Number of outstanding shares 100 000 Earnings 300 000 Retention ratio 60% 91-day Treasury bill rate 6% Market risk premium 8% UFSK Beta 1.2 Dividend growth rate stable phase 5% Bonds outstanding 5 000 Par value per bond 1000 Sermi-annual coupon rate on bonds 6% Bond yleld to maturity 8% Bond years remaining to maturity 4 Сегрогate tax rate 30% Additional information • UFSK limited recently paid a dividend • UFSK recently signed a deal and expects a super normal gronth in eamings. The company expects earnings to grow by 8% for the first two years then decline by 2% in the following year, there after a stable growth of 5% is expected into the future Required a) As an investment analyst advise your client how much must she expect to pay for UFSK limited stock b) Ascertain the market value of UFSK imited equity. c) Determine the fair value of UFSK imited bond d) Determine the total value of the company's…
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RECAPITALIZATION Currently, Forever Flowers Inc. has a Capital structure consisting of 25% debt and 75% equity. Forever's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 6%and the market risk premium (rMrRF) is 7%. Using the CAPM, Forever estimates that its cost of equity is currently 14.5%. The company has a 40% tax rate. a. What is Forevers current WACC? b. What is the current beta on Forevers common stock? c What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, buy? Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10.5%. The proposed change will have no effect on the companys tax rate d What would be the companys new cost of equity if it adopted the proposed change in capital structure? e. What would be the company's new WACC if it adopted the proposed change in capital structure? f. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure? Explain.
How do I calculate "Cost of equity", "Discount rate (WACC)", and "growth rate"?
5. Company cost of capital (S9.2) You are given the following information for Golden Fleece Financial: Long-term debt outstanding: $300,000 Current yield to maturity (rdebt): Number of shares of common stock: Price per share: Book value per share: Expected rate of return on stock (requity): Calculate Golden Fleece's company cost of capital. 8% 10,000 $50 $25 15%