Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Textbook Question
Chapter 16, Problem 2P
Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk’s assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets.
- a. Suppose Baruk has 10 million shares outstanding. What is Baruk’s current share price?
- b. How many new shares must Baruk issue to raise the capital needed to pay its debt obligation?
- c. After repaying the debt, what will Baruk’s share price be?
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Covan, Inc. is expected to have the following free cash flow:
a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price?
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c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?
a. Covan has 8 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 11%, what should be its stock price?
The stock price should be $
(Round to the nearest cent.)
A
b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price?
If you plan to sell Covan at the beginning of year 2, its price should be $ (Round to the nearest cont.)
c. Assume you bought Covan stock at the beginning of…
Covan, Inc. is expected to have the following free cash flow:
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b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price?
c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?
a. Covan has 7 million shares outstanding, $4 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price?
The stock price should be $
(Round to the nearest cent.)
b. Covan adds its FCF to cash, and has no plans to add debt. If you plan to sell Covan at the beginning of year 2, what is its expected price?
If you plan to sell Covan at the beginning of year 2, its price should be $
(Round to the nearest cent.)
c. Assume you bought Covan stock at the beginning of…
Covan, Inc. is expected to have the following free cash flow:
a. Covan has 7 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price?
Covan reinvests all its FCF and has no plans to add debt or change its cash holdings. If you plan to sell Covan at the beginning of year 2, what is its expected price?
c. Assume you bought Covan stock at the beginning of year 1. What is your expected return from holding Covan stock until year 2?
a. Covan has 7 million shares outstanding, $3 million in excess cash, and it has no debt. If its cost of capital is 12%, what should be its stock price?
The current stock price should be $
(Round to the nearest cent.)
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Year
1
2
3
4
FCF ($ million)
12
14
15
16
Grow by 3% per year
Print
Done
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Chapter 16 Solutions
Corporate Finance
Ch. 16.1 - Prob. 1CCCh. 16.1 - Does the risk of default reduce the value of the...Ch. 16.2 - If a firm files for bankruptcy under Chapter 11 of...Ch. 16.2 - Why are the losses of debt holders whose claims...Ch. 16.3 - Prob. 1CCCh. 16.3 - True or False: If bankruptcy costs are only...Ch. 16.4 - Prob. 1CCCh. 16.4 - According to the trade-off theory, all else being...Ch. 16.5 - Prob. 1CCCh. 16.5 - Why would debt holders desire covenants that...
Ch. 16.6 - Prob. 1CCCh. 16.6 - Prob. 2CCCh. 16.7 - Prob. 1CCCh. 16.7 - Prob. 2CCCh. 16.8 - How does asymmetric information explain the...Ch. 16.8 - Prob. 2CCCh. 16.9 - Prob. 1CCCh. 16.9 - Prob. 2CCCh. 16 - Gladstone Corporation is about to launch a new...Ch. 16 - Baruk Industries has no cash and a debt obligation...Ch. 16 - When a firm defaults on its debt, debt holders...Ch. 16 - Prob. 4PCh. 16 - Prob. 5PCh. 16 - Suppose Tefco Corp. has a value of 100 million if...Ch. 16 - You have received two job offers. Firm A offers to...Ch. 16 - As in Problem 1, Gladstone Corporation is about to...Ch. 16 - Kohwe Corporation plans to issue equity to raise...Ch. 16 - Prob. 10PCh. 16 - Prob. 11PCh. 16 - Hawar International is a shipping firm with a...Ch. 16 - Your firm is considering issuing one-year debt,...Ch. 16 - Marpor Industries has no debt and expects to...Ch. 16 - Real estate purchases are often financed with at...Ch. 16 - On May 14, 2008, General Motors paid a dividend of...Ch. 16 - Prob. 17PCh. 16 - Consider a firm whose only asset is a plot of...Ch. 16 - Prob. 19PCh. 16 - Prob. 20PCh. 16 - Prob. 21PCh. 16 - Consider the setting of Problem 21 , and suppose...Ch. 16 - Consider the setting of Problems 21 and 22, and...Ch. 16 - You own your own firm, and you want to raise 30...Ch. 16 - Empire Industries forecasts net income this coming...Ch. 16 - Ralston Enterprises has assets that will have a...Ch. 16 - Prob. 27PCh. 16 - If it is managed efficiently, Remel Inc. will have...Ch. 16 - Which of the following industries have low optimal...Ch. 16 - According to the managerial entrenchment theory,...Ch. 16 - Info Systems Technology (IST) manufactures...Ch. 16 - Prob. 32PCh. 16 - Prob. 33P
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