Market value of equity

Assignment Help Finance Basics
Reference no: EM131190847

Your company doesn't face any taxes and has $502 million in assets, currently financed entirely with equity. Equity is worth $40.20 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State

Recession

Average

Boom

Probability of State

.25

.55

.20

Expect EBIT in State

$52 million

$102 million

$172 million

The firm is considering switching to a 15-percent debt capital structure, and has determined that they would have to pay a 11 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)

$8.97 $15.42 $28.37 $9.46

Reference no: EM131190847

Questions Cloud

Why is it important to evaluate sources for credibility : Why is it important to evaluate sources for credibility, reliability, and bias? What are possible consequences for not evaluating sources for these items?
Describes the central argument or idea of your essay : Thesis statement: Your thesis statement should clearly make a claim and describes the central argument or idea of your essay.
Compute the change in owners equity : Compute the change in owner's equity during the yaer by using the accoumting equation.- determine and compute the company's net income or net loss.
Inventory assuming that all sales are on credit : Al's Sport Store has sales of $2,880, costs of goods sold of $2,190, inventory of $532, and accounts receivable of $425. How many days, on average, does it take the firm to sell its inventory assuming that all sales are on credit?
Market value of equity : Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:
What is the maximum frequency counter can operate reliably : What is the maximum frequency the counter can operate reliably?
How your education philosophy is relevant to day-to-day work : Explain how your education philosophy is relevant to the day-to-day work of the professional teacher. Identify the definition of curriculum that your education philosophy relates to the most.
Analyse the relevance of trade in the global marketplace : INB60003 International Trade And Investment. Critically analyse the main trends of International Trade and Investment justifying forecasts and predictions into the future. Critically analyse the relevance of trade in the global marketplace identifyi..
What is the net new long-term debt : During 2014, Raines Umbrella Corp. had sales of $660,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $500,000, $90,000, and $85,000, respectively. Suppose Raines Umbrella Corp. paid out $54,000 in cash div..

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Finding present value of ordinary annuity

Find out the present value of ordinary annuity which pays $4,800 per year for eight years, supposing the annual discount rate is seven percent?

  Bo newman will invest 10000 today in a fund that earns 5

bo newman will invest 10000 today in a fund that earns 5 annual interest. how many years will it take for the fund to

  Should your company purchase the dump truck

The dump truck could be billed out at $55.00 per hour and costs $13.00 per hour to operate. The operator costs $22.00 per hour. Using 1,000 billable hours per year determine the net present value for the purchase of the dump truck using a MARR of 18%..

  An oil companys resources are being depleted and known

an oil companys resources are being depleted and known reserves are becoming scarcer. as a result the companys earnings

  Outline the firms best course of action calculate rank and

australian firm transportation ltd. tl has just signed a contract to sell rail cars to italy for euro2500000. the

  How does the deposit-loan rate spread in the eurodollar

How does the deposit-loan rate spread in the Eurodollar market compare with the deposit-loan rate spread in the domestic U.S. banking system? Why?

  Lean and agile supply chain strategies

1. What are the similarities and differences between lean and agile supply chain strategies? 2. Explain how manufacturing has evolved.

  In a 250-300 word response answer the following question

in a 250-300 word response answer the following question do you believe most people are poor listeners or good

  What will happen to the price of the bond

A $5000 bond with a coupon rate of 5.4% paid semiannually has five years to maturity and a yield to maturity of 7.5%. If interest rates falls and the yield to maturity decreases by 7.8% , what will happen to the price of the bond?

  A companys balance sheet contained the following information

A company's balance sheet contained the following information. Notes Payable is the only other item on the balance sheet. Notes Payable must equal:

  What is the expected gain from the acquisition what is the

dublin medical dm a large established corporation with no growth in its real earnings is considering acquiring 100 of

  How much money does melinda need to deposit into her

how much money does melinda need to deposit into her investment account today if she wishes to withdraw 8000 a year for

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd