Assume that your company is an EBIT is currently $10,000,000, and EBIT is expected to remain constant over time. The company ays out all of its earnings each year, its growth is zero, its earnings per share equals its dividends er share, and the company's tax rate is 40. e company is considering issuing $10.0 million worth of bonds (at par) and using the proceeds for tock repurchase. The firm's cost of this debt (their annual coupon rate) would be 6 percent. The -free rate in the economy is 4 percent, and the market risk premium is 6 percent. The company' a is currently 1.10, but its investment bankers estimate that the company's beta would rise to Dif it proceeds with the recapitalization. me that the market does anticipate an increase in value when the firm announces that it will
Assume that your company is an EBIT is currently $10,000,000, and EBIT is expected to remain constant over time. The company ays out all of its earnings each year, its growth is zero, its earnings per share equals its dividends er share, and the company's tax rate is 40. e company is considering issuing $10.0 million worth of bonds (at par) and using the proceeds for tock repurchase. The firm's cost of this debt (their annual coupon rate) would be 6 percent. The -free rate in the economy is 4 percent, and the market risk premium is 6 percent. The company' a is currently 1.10, but its investment bankers estimate that the company's beta would rise to Dif it proceeds with the recapitalization. me that the market does anticipate an increase in value when the firm announces that it will
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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