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Capital structure and dividend policy A large travel company owns a resorts and hotels. The CFO wants to change the company's capital structure. The change will mean that debtratio (debt-to-value-ratio) is increased to 50% by a large issuance of new debt and an extraordinary payout to shareholders. The company's marginal tax rate is 30%. It has 200 million outstanding shares with the current price of $36 per share. Market value of the company's total debt is $1.800 million, spread over outstanding bond with a market value of $850 million and a creditline with the company's main bank where floating rate is 5% and outstanding debt is $950 million.
A) What is the current (debt-to-value ratio)?
B) What would the value of the company have been if it had not been leveraged?
C) How much debt is required to implement the new capital structure?
D) What is the effect on the number of shares outstanding and how big it is extraordinary dividend?
E) What is the impact on the stock price after the extraordinary dividend has been paid?
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Taft Manufacturing is currently a levered firm with 15M shares outstanding priced at $30.00 per share and 350K bonds outstanding priced at $1,000 per bond. Taft’s assets consist of its operating assets and tax shield. Calculate the value of the tax s..
ABC Incorporated’s stock is selling for $40 per share and has an expected dividend in the coming year of $2.00, and has an expected constant growth rate of 5.00%. The company is considering issuing a 10-year convertible bond that would be priced at i..
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