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- There are two firms: Firm U and Firm L. Both firms have $30,000 total assets and $5,000 EBIT (earnings before interest and taxes). Firm U is an unlevered firm without debt, and its number of outstanding shares is 1,000. Firm L is a levered firm financed with 50% debt and 50% common equity. The firm plans to use the debt to repurchase 50% of the outstanding shares (Note: reduce the outstanding shares). The pre-tax cost of debt for Firm L is 10%. Both firms have a 20% corporate tax rate. Calculate the earnings per share (EPS) for the unlevered firm U. A)$3.5 per share B)$5.0 per share C)$4.0 per share D)$5.6 per shareThe ABC company is unlevered (that means, it currently has no debt) and is valued at $150,551. There are currently 3,562 shares outstanding. ABC is currently deciding whether to include debt in its capital structure. If ABC repurchases 347 shares, what will be the new value of the firm? Assume no taxes.The paid in capital section of the stockholders equity section is as follows: COmmon Stock, Par value $2.00; Authorized 100,000 shs, Issued and outstanding 50,000 shares = 100,000 the board of directions beleives that the current market price of $50.00 per share is too high and is detracting from investors buying the shares. The board declared a 2:1 stock split. Requried: 1) what is the effect of the split on the common shares? list all items effected by the stock split. - par value - issued and outstanding shares - Market price of the shares - Common stock balance after the split on the paid in capital Section?
- The following excerpt is from an article reported in an online issue of Bloomberg. Ford Motor Co. (F) said it will repurchase $1.8 billion of its shares to reduce dilution from recent stock grants to executives. The par amount per share for Ford's common stock is $0.01. Pald-in capital-excess of par is $5.39 per share on average. The market price was $16. Required: 1. Suppose Ford reacquires 112 million shares through repurchase on the open market at $16 per share. Prepare the appropriate journal entry to record the purchase. Ford considers the shares It buys back to be treasury stock. 2. Suppose Ford considers the shares It buys back to be retired rather than treated as treasury stock. Prepare the appropriate journal entry to record the purchase. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Suppose Ford reacquires 112 million shares through repurchase on the open market at $16 per share. Prepare the appropriate journal entry to record the…The Greenbriar is an all-equity firm with a total market value of $551,000 and 21,700 shares of stock outstanding. Management is considering issuing $153,000 of debt at an interest rate of 9 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities? Multiple Choice • 49,590 shares • 542 shares 6,026 shares 6,695 shares 7,304 sharesClassify the following transactions as taking place in the primary or secondary markets: IBM issues $200 million of new common stock. The New Company issues $50 million of common stock in an IPO. IBM sells $5 million of GM preferred stock out of its marketable securities portfolio. The Magellan Fund buys $100 million of previously issued IBM bonds. 6.Prudential Insurance Co. sells $10 million of GM common stock
- 13. Texas Inc. is all equity financed and uses common shares to finance its investments and operations. Texas Inc.'s 250,000 common shares are currently trading at a price of $45 each. The company's average tax rate is 35%. Ignoring distress costs, determine the price per share of Texas Inc. If Texas issues 1,000 bonds at a price of $900 each ($900,000 debt) in order to repurchase a proportion of its shares. Texas Inc.'s debt level is fixed in perpetuity and the risk of tax shields is the same as the risk of debt.The common stock and debt of Northern Sludge are valued at $72 million and $12 million, respectively. Investors currently require a 16.4% return on the common stock and/an 7.3% return on the debt. If Northern Sludge issues an additional $12 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern's debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.)Kennedy Limited is an all-equity publicly listed firm with 600,000 shares currently on issue trading at $20 per share and is expected to generate $1,800,000 in EBIT p.a. in perpetuity. They are considering immediately repurchasing one third their equity at the current market price and replacing this with debt with an interest cost of 4% per annum. Assume that Kennedy Limited operate in a perfect capital market with no taxes, information costs, transaction costs etc. a) Demonstrate the impact of the change in capital structure on the (i) Net Income, (ii) ROE and (iii) ROA for Kennedy Limited. b) For what value of EBIT will ROE be unaffected by Kennedy Ltd’s decision to repurchase shares?
- 1)An all-equity firm has 9 million shares outstanding and each share is priced at $167. The firm announces that it will be issuing $260 million in permanent debt that they will use to repurchase shares. The market hears this news and assimilates the information immediately. What is the new share price? Assume the firm's tax rate is 21% and there are no financial distress costs. 2)A CEO, working on behalf of the equityholders, is choosing between two mutually-exclusive projects: A and B. A has a 100% probability of earning $150 million. B has an 80% probability of earning $200 million and a 20% probability of earning $0. Ignore discounting. The firm has debt to pay of $100 million. Solve for which project has the highest expected value for the equityholders. What is that value? 3) Your firm is evaluating a project that will generate the following cash flows next year with the following probabilities: Cash Flow at t=1 Probability Good Case $600M 0.75 Bad Case $200M 0.25 You…The Greenbriar is an all-equity firm with a total market value of $584,000 and 22,800 shares of stock outstanding. Management is considering issuing $197,000 of debt at an interest rate of 10 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares will the firm repurchase if it issues the debt securities?The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?