Wayne, Inc., wishes to expand its facilities. The company currently has 6 million sharesoutstanding and no debt. The stock sells for $28 per share, but the book value per shareis $8. Net income is currently $4.2 million. The new facility will cost $42 million, and it willincrease net income by $810,000. Assume a constant price-earnings ratio.a-1. Calculate the new book value per share. (Do not round intermediate calculations

Calculation of New Book Value per share:

Answered: Wayne, Inc., wishes to expand its…

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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Lester's has expected earnings before interest and taxes of $57,800, an unlevered cost of capital of 10.2 percent, and debt with both a book and face value of $84,000. The debt has a coupon rate of 8.35 percent and the tax rate is 21 percent. What is the value of this company? $376,544 $596,973 $648,293 $456,666 O $389,304
Saki Sushi Restaurant has 250,000 shares of stock outstanding, $400,000 in perpetual after-tax EBIT, and a discount rate of 15 percent. The firm is considering a new project that has initial costs of $360,000 and annual perpetual after-tax EBIT of $60,000. What will be the change in the firm's stock price per share if this project is accepted? $0.12 $0.08 $0.20 $0.16
Atlantis REIT expects an income of $46 per share. This includes a deduction of $40 per share for depreciation. Atlantis did not have any gains from the sale of real estate. Its properties are mainly apartments, and you believe that apartments are currently selling on average at about an 8 percent cap rate. Atlantis has 1 million shares outstanding and its balance sheet shows liabilities of $192 million. Comparable REITs have FFO multiples of about 10. Atlantis is expected to pay a dividend during the next fiscal year of $6 per share and to increase those dividends at about 2 percent per year in the future. Investors in REITs like Atlantis usually expect a return of about 12 percent. Required: a. What is the FFO and value per share based on an FFO multiple? b. What value per share is indicated using a dividend discount model? c. What is the value per share implied by the net asset value of the properties?
Marker, Incorporated, wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $40 per share, but the book value per share is $53. Net income is currently $3.6 million. The new facility will cost $20 million, and it will increase net income by $280,000. The par value of the stock is $1 per share. Assume a constant price-earnings ratio. a-1. Calculate the new book value per share. Assume the stock price is constant. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-2. Calculate the new total earnings. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) a-3. Calculate the new EPS. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) a-4. Calculate the new stock price. Include…
Tecumseh Inc. is analyzing the possible merger with Devonshire Inc. Savings from the merger are estimated to be a one-time after-tax benefit of $156 million. Devonshire Inc. has 5.2 million shares outstanding at a current market price of $82 per share. What is the maximum cash price per share that could be paid for Devonshire Inc.? (Omit "$" sign in your response.) Maximum cash price per share $
Fujita, Incorporated, has no debt outstanding and a total market value of $250,000. Earnings before interest and taxes, EBIT, are projected to be $42,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 18 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $100,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 10,000 shares outstanding. Ignore taxes for this problem. a-1. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is issued. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a-2. Calculate the percentage changes in EPS when the economy expands or enters a recession. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded…
Consider a REIT that holds high quality office buildings in some of the best locations in the US. The REIT is currently traded at a price of $64/share and there are 130 million shares outstanding. Using the information below answer the following questions: Expected next year total revenue: $750M Expected next year total expenses (including interest and depreciation): $380M Expected next year depreciation: $90M Expected next year interest: $70M Total debt: $1.6B Current office CAP in the US: 4.5% to 6.0% depending on quality and location. a. What is your estimation for a fair market value for a share of the REIT described? Show your work! b. What is your estimation for a fair price to pay for a share of the REIT described, if you require a 7.5% rate of return on an unlevered basis and expect the REIT to increase NOI at an average rate of 2.5%? Should you buy shares of that REIT?
Fields & Company expects its EBIT to be $107,000 every year forever. The company can borrow at 7 percent. The company currently has no debt and its cost of equity is 11 percent. The tax rate is 21 percent. The company borrows $162,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of equity b. WACC % %

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