Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O C. $1.143 $1.125 $1.500

Tina Black's Fabrics is currently an all equity firm that has 15,000 shares of stock outstanding at a market price of $12.50 a share. Company management has decided to issue $60,000 worth of debt and use the funds to repurchase shares of the outstanding stock at the market price. The interest rate on the debt will be 7%. Ignoring taxes, what is the earnings per share (EPS) at the break-even level of earnings before interest and taxes (EBIT)? O A. O B. O C. $1.143 $1.125 $1.500

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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Ketchup Corporation is currently trading at $40 per share. There are 0.5 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 20% over 1 year if the management were replaced. How much would you gain from acquiring 60% of Ketchup's shares by getting a 1-year, 10%-interest loan? Hint: you are not using your own money. The money for the investment comes from the loan. $4,000,000. $0. $2,400,000. $1,320,000. $1,200,000.
Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects togenerate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid outas dividends. The firm is considering a capital restructuring for which the company will issue$3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the sameindustry have a cost of equity of 20%. The capital restructuring is going to take place onemonth after its announcement. What is the share price of Supercool on the day before andafter the restructuring completion? can you handwrite please?
Zimmerman's Landscaping just paid an annual dividend of $2.89 on its common stock. The firm increases its dividend by 3.60 percent annually. What is the company's cost of equity if the current stock price is $40.60 per share?
Cute Camel Woodcraft Company just reported earnings after tax (also called net income) of $9,250,000 and a current stock price of $39.50 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 3,000,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,500,000). If Cute Camel's forecast turns out to be correct and its price/earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Round any P/E ratio calculation to four decimal places.) O $31.98 per share O $39.50 per share O $23.99 per share O $39.98 per share
Marie Corp. has $1,465 in debt outstanding and $2,804 in common stock (and no preferred stock). Its marginal tax rate is 30%. Marie's bonds have a YTM of 6.7%. The current stock price (Po) is $46. Next year's dividend is expected to be $2.81, and it is expected to grow at a constant rate of 7% per year forever. The company's W.A.C.C. is ____%. Round your final answer to 2 decimal places (example: enter 12.34 for 12.34%), but do not round any intermediate work in the process.
The net income of Progressive Corporation is $92,000. The company has 25,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,790,000. The appropriate discount rate for the company is 11 percent and the dividend tax rate is zero. a. What is the current value of the firm assuming the current dividend has not yet been paid? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the ex-dividend price of the company's stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Current value of the firm b. Share price
Cede & Co can borrow at 11 percent. Cede currently has no debt, and the cost of equity is 12 percent. The current value of the firm is $664,000. The corporate tax rate is 30 percent. Required: What will the value be if Cede borrows $223,000 and uses the proceeds to repurchase shares?
Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects togenerate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid outas dividends. The firm is considering a capital restructuring for which the company will issue$3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the sameindustry have a cost of equity of 20%. The capital restructuring is going to take place onemonth after its announcement. What is the share price of Supercool on the day before andafter the restructuring completion?
Keet Industries is currently an all-equity firm that pays no taxes. The market value of the firm’s equity is £1,500,000. The cost of the unlevered equity is 12% per annum. Keet plans to issue £500,000 in debt and use the proceeds to repurchase shares. The cost of debt is 8% per annum. What will Keet's cost of equity be after the share repurchase? Select one: 9% 12% 14% 20% None of the above
The company Nexti AS has 2 million shares outstanding with a market price of NOK 30 per share and with an equiry beta equal to 1.5. The book value of equity is NOK 40 million. The company also has NOK 70 million in long-term debt, the debt beta is equal to zero. Risk-free interest rate is 3% and the market risk premium is 7%. The company pays 30% income tax. (There is nobody investor tax, Se=Sk=0) a) What would the value of the company be worth if it were 100% equity financed? b) What would the company's cost of equity be if the company is financed with 100% equity?
The W.C. Pruett Corp. has $800,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 12%. In addition, it has $700,000 of common equity on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $4.8 million, its average tax rate is 25%, and its profit margin is 2%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places. TIE: ROIC: X %

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