EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 3, Problem 15P
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To discuss: The main reason that these two firms having different market-to-book ratios.
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Zefer Ltd. has faced extreme financial difficulties over the course of the past decade, however, the sales of safety gates which it manufactures, is currently booming. The company however cannot meet demand due to liquidity constraints and is pondering a rights issue. Its shares are currently trading at 90c apiece and there are 1 billion shares outstanding. It is envisaged that the markets will react negatively to the rights issue and that the company would have to significantly under-price the rights to ensure a full subscription. The company plans to set a subscription price of 50c apiece. Zefer Ltd. wants to raise R50 million with its offer.
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what is the degree of operating leverage for each company?
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After researching the competitors of EJH Enterprises, you determine that most comparable firms have the following valuation ratios (see MyLab Finance for the data in Excel format): EJH Enterprises has earnings per share of $2, EBITDA of $300 million, $30 million in cash, $40 million in debt and 100 million shares outstanding. What range of prices is consistent with both sets of multiples?
Chapter 3 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
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