The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT Growth rate in EBIT, 9L Cost of equity, rs Shares outstanding, no Tax rate, T (federal-plus-state) a. What is Rivoli's intrinsic value of operations (i.e., its unlevered value)? Round your answer to the nearest dollar. $ What is its intrinsic stock price? Its earnings per share? Round your answers to the nearest cent. Intrinsic stock price: $ $500,000 0% 10% 100,000 What is the new earnings per share? Do not round intermediate calculations. Round your answer to the nearest cent. $ 25% Earnings per share: $ b. Rivoli considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 25% debt based on market values, its cost of equity, rs, will increase to 11% to reflect the increased risk. Bonds can be sold at a cost, rd, of 6%. Based on the new capital structure, what is the new weighted average cost of capital? Round your answer to three decimal places. % What is the levered value of the firm? What is the amount of debt? Do not round intermediate calculations. Round your answers to the nearest dollar. Levered value of the firm: $ Debt: $ c. Based on the new capital structure, what is the new stock price? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the remaining number of shares? Do not round intermediate calculations. Round your answer to the nearest whole number. shares
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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