Reference no: EM131317953
Consider a world of perfect capital markets. This world has no corporate or personal taxes, all investors have homogeneous expectations, no bankruptcy costs, and M&M's no-tax theory of capital structure is true.
Company Y is financed has the following market value balance sheet:
Assets = $450 Liabilities = $210
Equity = $240
The firm had $27.00 in EBIT last year. The firm has 30 shares outstanding. The firm expects this same return for the foreseeable future. The firm is a zero growth firm, that pays out all excess earnings as dividends. Any time the firm changes its capital structure, it changes only the debt/equity mix and does not change its total assets. The firm's liabilities consists entirely of perpetual debt. The firm's debt is risk-less, selling at par, and has a 3% yield. If the firm were to change its capital structure, new debt would still have a 3% yield. The expected return on the market portfolio is 8.0%. Given this information, answer the following questions:
a. What is the firm's return on equity?
b. What is the firm's current weighted average cost of capital.
c. What is the current stock price per share?
Now assume that the above firm issues enough equity to repurchase all of the firm's debt. This change in capital structure reveals no new information about future firm prospects.
d. Write out the firm's new balance sheet.?
e. What is the firm's new stock price?
|
Growth rate in dividends is expected to be constant
: Simon Fixtures Corp. is expected to pay $2.10 per share in dividends at the end of the next 12 months. The growth rate in dividends is expected to be constant at 4% per year. If the stock is selling for $50 per share, what is the required rate of ret..
|
|
Calculate the corporation total accounting profits
: A corporation has $7 million in equity. During 2015, it had $4 million in receipts and $2 million in capital gains from the sale of a subsidiary. It incurred labor costs of $1 million, interest costs of $250,000, material costs of $500,000, and paid ..
|
|
Was leader of change project transactional or transformation
: Was the leader of this change project transactional or transformational? Define those two terms and explain why you feel your leader was mainly one or the other, or evenly divided between both.
|
|
Find the payment at the start of each month
: Herb is a self-employed agent who is setting his own retirement fund. He is depositing $17,000 a year for the next 20 years. How much will he be able to collect for his retirement given that his retirement fund bears 11% interest compounded semian..
|
|
World of perfect capital markets
: Consider a world of perfect capital markets. This world has no corporate or personal taxes, all investors have homogeneous expectations, no bankruptcy costs, and M&M's no-tax theory of capital structure is true.
|
|
Explain and discuss how leaders can change leadership styles
: Explain and discuss how leaders can change leadership styles. In reference to the BHCo case, should the CEO (Carrie Worth) change her leadership style? Ensure you reference George (2015)
|
|
Consumer products division-should management make change
: Suppose Carter Chemical Company's management conducts a study and concludes that if Carter expands its consumer products division (which is less risky than its primary business, industrial chemicals), the firm's beta will decline from 1.1 to 0.9. Sho..
|
|
Why do you think domestic terrorists exist in society
: Why do you think domestic terrorists exist in society? Explain.Do you think various triggers drive them to extremism, or are they slowly conditioned throughout their lives? Explain.What reasons might domestic terrorists have for planning and executin..
|
|
Calculate lissa total dividends
: a. Calculate Lissa's total dividends for 2014 if its dividend payment is set to force dividends to grow at the long-run growth rate in earnings. b. Calculate Lissa's total dividends for 2014 if it continues its 2013 dividend payout ratio.
|