The firm plans to increase its fixed assets by 15% in 2021 (from the 2020 level) from an increase in equity alone. What level of stock price would allow the firm to execute its plan while maintaining its return-on-equity and P/E ratio? Assume that the firm will not raise additional capital by increase the humber of shares in the stock market (i.e., the outstanding shares at the end of 2021 will remain at 100 million).
The firm plans to increase its fixed assets by 15% in 2021 (from the 2020 level) from an increase in equity alone. What level of stock price would allow the firm to execute its plan while maintaining its return-on-equity and P/E ratio? Assume that the firm will not raise additional capital by increase the humber of shares in the stock market (i.e., the outstanding shares at the end of 2021 will remain at 100 million).
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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Transcribed Image Text:The financial statements of Inland Engineering are provided below. The firm has 100 million shares
outstanding at the end of 2020 and the stock price was $10.
The firm plans to increase its fixed assets by 15% in 2021 (from the 2020 level) from an increase in
equity alone. What level of stock price would allow the firm to execute its plan while maintaining its
return-on-equity and P/E ratio? Assume that the firm will not raise additional capital by increase the
number of shares in the stock market (i.e., the outstanding shares at the end of 2021 will remain at
100 million).
(provide your answer in the nearest dollar, i.e., no decimal places)
Balance Sheet Statement, 2020 (in $million)
Income Statement, 2020 (in $million)
Current assets
1,199
Gross sales
2,064
Fixed assets
1,466
Cost of goods sold
(838)
Current debt
510
Operating expenses
(443)
Long-term debt
256
Income taxes
(138)
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