Part 3Walker Wear (WW) manufactures special zombie bite-proof clothing and accessories and hasexperienced rapid growth after a successful recent IPO. WW has a target capital structure of85% equity and 15% debt and a capital investment budget of $250 million for the coming yearas well as a forecasted net income of $312 million and 208 million shares outstanding.a) Use the residual distribution approach to determine Walker Wear's total dollardistribution.b) Assuming the entire distribution will be in the form of a dividend, what is the dividendper share (DPS)c) What is the dividend payout ratio?d) If the net income forecast falls to $190 million, what is the payout ratio and DPS?e) If the net income forecast increases to $364 million what is the payout ratio and DPS?Now suppose Walker Wear's estimated value of operations is expected to be $4,774 million andhas $867 million in debt and no preferred stock. WW also has $133 million in short-terminvestments that it plans to distribute.a) What is WW's intrinsic value of equity prior to the distribution? What is the stock priceper share prior to the distribution?b) Walker Wear has just made the $133 million distribution in the form of a dividend.What is the intrinsic value of equity? What is the intrinsic stock price per share?c) Instead of a dividend distribution, suppose IG has just made the $133 milliondistribution in the form of a stock repurchase. What is the intrinsic value of equity?How many shares did IG repurchase? How many shares remain outstanding? What isthe intrinsic stock price per share?

According to distribution approach, the after making provision for capital budget remaining amount…

Walker Wear (WW) manufactures special zombie bite-proof clothing and accessories and experienced rapid growth after a successful recent IPO. WW has a target capital structure 85% equity and 15% debt and a capital investment budget of $250 million for the coming as well as a forecasted net income of $312 million and 208 million shares outstanding. a) Use the residual distribution approach to determine Walker Wear's total dollar distribution. b) Assuming the entire distribution will be in the form of a dividend, what is the divid per share (DPS) c) What is the dividend payout ratio? d) If the net income forecast falls to $190 million, what is the payout ratio and DPS?

Walker Wear (WW) manufactures special zombie bite-proof clothing and accessories and experienced rapid growth after a successful recent IPO. WW has a target capital structure 85% equity and 15% debt and a capital investment budget of $250 million for the coming as well as a forecasted net income of $312 million and 208 million shares outstanding. a) Use the residual distribution approach to determine Walker Wear's total dollar distribution. b) Assuming the entire distribution will be in the form of a dividend, what is the divid per share (DPS) c) What is the dividend payout ratio? d) If the net income forecast falls to $190 million, what is the payout ratio and DPS?

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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The following table presents forecasted financial and other information for Scandinavian Furniture: Projected EBIT Earnings after tax Free cash flow Havasham's WACC Expected growth rate in FCFs after 2014 Warranted MV firm/FCF in 2014 Warranted P/E in 2014 O $3,628 million O $363 million O $3,833 million 2012 $317 197 135 O $161 million 8.2% 4.0% What is an appropriate estimate of Scandinavian Furniture's terminal value as of the end of 2014, using the perpetual-growth equation as your estimate? 19.4 18.7 2013 $339 210 144 2014 $363 225 155
Kielly Machines Inc. is planning an expansion program estimated to cost $100 million. Kielly is going to raise funds according to its target capital structure shown below. Debt 0.30 Preferred stock 0.24 Equity 0.46 Kielly had net income available to common shareholders of $184 million last year of which 75% was paid out in dividends. The company has a marginal tax rate of 40%. Additional data: The before-tax cost of debt is estimated to be 11%. The market yield of preferred stock is estimated to be 12%. The after-tax cost of common stock is estimated to be 16% What is Kielly's weighted average cost of capital? Select one: a. 14.00% b. 12.22% c. 13.54% d. 13.00%
You are going to value Lauryn's Doll Co. using the FCF model. After consulting various sources, you find that Lauryn's has a reported equity beta of 1.5, a debt-to-equity ratio of .4, and a tax rate of 21 percent. Based on this information, what is the asset beta for Lauryn's? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct. Lauryn's asset 1.22 x beta
Dyrdek Enterprises has equity with a market value of $10.9 million and the market value of debt is $3.60 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.7 percent. The new project will cost $2.22 million today and provide annual cash flows of $581,000 for the next 6 years. The company's cost of equity is 11.11 percent and the pretax cost of debt is 4.89 percent. The tax rate is 21 percent. What is the project's NPV? Multiple Choice $230,173 $375,414 $237,180 $219,241 $512,072
Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, rd, is 10.4%, the firm's cost of preferred stock, rp, is 9.6% and the firm's cost of equity is 13.0% for old equity, rs, and 13.3% for new equity, re. What is the firm's weighted average cost of capital (WACC1) if it uses retained earnings as its source of common equity? Do not round intermediate calculations. Round your answer to two decimal places.
Based on the following numbers, calculate the firm’s WACC, explaining in detail each step in your calculations and the formulas that you are using. You may find it useful to complete this task in Excel and include the Excel table in your response. Cost of debt (averaging over all the forms of debt used): 12%. Risk-free rate on Treasury Bonds: 5%. Expected return on the domestic portfolio: 9%. Effective tax rate: 20%. Share of debt in optimal capital structure: 65%. Share of equity in optimal capital structure: 35%. Beta: 1.2
Dyrdek Enterprises has equity with a market value of $12.6 million and the market value of debt is $4.45 million. The company is evaluating a new project that has more risk than the firm. As a result, the company will apply a risk adjustment factor of 1.9 percent. The new project will cost $2.56 million today and provide annual cash flows of $666,000 for the next 6 years. The company's cost of equity is 11.79 percent and the pretax cost of debt is 5.06 percent. The tax rate is 24 percent. What is the project's NPV? Multiple Choice $208,195 $194,561 $536,049 $183,363 $364,858

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