Capitalization increase or decrease shareholder wealth

Assignment Help Financial Management
Reference no: EM131027037

Barns Brother's capital structure is 100% equity and 0% debt.

Currently there are 100,000 shares of common stock outstanding.

Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort.

The firm’s Share price is $40.00 and its EPS is $3.00.

The company can borrow $1,000,000 at 9%.

EBIT is expected to be $500,000 and the tax rate is 40%.

How much will the capitalization increase or decrease shareholder wealth?

$0.28 per share

$0.00 per share

$0.36 per share

$0.17 per share

Reference no: EM131027037

Questions Cloud

Coupon bonds making annual payments with a YTM : Cavo Corp. has 8 percent coupon bonds making annual payments with a YTM of 7.5 percent. The current yield on these bonds is 7.85 percent. How many years do these bonds have left until they mature? How would i put this into excel?
Sector fund specializing in commercial bank stocks : A sector fund specializing in commercial bank stocks had average daily assets of $3.4 billion during the year. This fund sold $1.25 billion worth of stock during the year, and its turnover ratio was .42. How much stock did this mutual fund purchase d..
Determine the equivalent uniform annual worth : A company plans to invest $20,000 dollars are new equipment to reduce operating costs. It is estimated that the savings will be $7,000 per year for the 6 year life of the equipment. Determine the equivalent uniform annual worth (EUAW) of the equipmen..
Interest rate parity in calculating the expected spot rates : You are evaluating a proposed expansion of an existing subsidiary located in Switzerland. The cost of the expansion would be SF 18 million. The cash flows from the project would be sf 5.5 million per year for the next five years. Use the approximate ..
Capitalization increase or decrease shareholder wealth : Barns Brother's capital structure is 100% equity and 0% debt. Currently there are 100,000 shares of common stock outstanding. Barns has decided to change its capital structure by buying back shares of common stock in a recapitalization effort. How mu..
Calculate total cash flows operational and nonoperational : A company is purchasing a new machine which will cost $130,000 with additional shipping costs of $5,000 and set up and installation costs of $12,000. An additional $8,000 in Net Working Capital will be required. Calculate the total cash flows (operat..
For nominal bond returns : Over the last 111 years, 1981 was the top year for nominal bill returns, and 1982 was the top year for nominal bond returns. Why do you think that these two years saw such high returns on bonds and bills? Research the interest rate environment during..
About british laws as applied to workplace surveillance : The article is talking about British laws as applied to workplace surveillance. Do you think that similar laws can work in the US to give more protection to employees? The article raises the question of consent from employees to be monitored. Do you ..
Time to reach a financial goal : You have $39,351.04 in a brokerage account, and you plan to deposit an additional $4,000 at the end of every future year until your account totals $290,000. You expect to earn 11% annually on the account. How many years will it take to reach your goa..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What are the annual taxes owed on the interest

ABC, Inc. issues a split-coupon $1,000 bond that matures in seven years. Interest payments are $80 a year (8%) and start after three years have elapsed. The bond initially sells for a discount price of $794. You are in the 30 percent income tax brack..

  Calculate the npv of the order

The Branding Iron Company sells its irons for $50 a piece wholesale. Production cost is $40 per iron. There is a 25% chance that wholesaler Q will go bankrupt within the next year. Q orders 1000 irons and asks for six months' credit. Assume that the ..

  Discourage investment in these developing economies

Do the International Monetary System's policies support or impede the progress of developing economies? Do these policies encourage or discourage investment in these developing economies?

  What was your total dollar return-percentage return

Assume you own 130 shares of Johnson and Johnson. You paid $45/sh. You sold the stock one year later for $49/share. During the year you held the stock, you earned $1.00/sh in Dividends. What was your total dollar return? What was your percentage retu..

  Expect dividends to grow at constant annual rate

Investors require a 15% rate of return on Levine Company's stock (that is, rs = 15%). What is its value if the previous dividend was D0 = $1.00 and investors expect dividends to grow at a constant annual rate of (1) -7%, (2) 0%, (3) 6%, or (4) 11%?

  Statements regarding mortgage pass-through bonds

Which of the following statements regarding mortgage pass-through bonds (MPTBs) is FALSE?

  Labor cost incurred in meeting the service requirements

CSL is a chain of computer service stores. At the beginning of January, 50 skilled technicians work for CSL. Each skilled technician can work up to 160 hours per month. To meet future demands, new technicians must be trained. It takes 1 month to trai..

  Satisfied by dividend yield and how much by capital gain

Anle corporation has a current stock price $20 and is expected to pay a dividend of $1 in one year. Its expected stock price right after paying that dividend is $22. How much of Anle's equity cost of capital is expected to be satisfied by dividend yi..

  Identify the five basic functions of management

Identify the five basic functions of management, and describe each function. Briefly describe how such functions are used in the context of internal analysis.

  Share of this stock worth today if required rate of retun

Langley Enterprises pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends permanently. What is one share of this stock worth t..

  The discussion board db is part of the core of online

the discussion board db is part of the core of online learning. classroom discussion in an online environment requires

  What is the firms debt-equity ratio

Central Systems, Inc. has a weighted average cost of capital of 8 percent. The firm has an after-tax cost of debt of 4 percent and a cost of equity of 12 percent. What is the firm's debt-equity ratio?

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