Rextesla Industrial is a company which wants to raise 4 billion CHF by means of equity...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Rextesla Industrial is a company which wants to raise 4 billion CHF by means of equity issuance. Using the last available financial statements, its free cash flow stands at 1 billion, and without the equity issuance, that cash flow is expected by the market to grow at g₁ = 2% per year indefinitely. Rextesla is planning to use the equity issuance proceeds in an expansion of its production capacity. The first cash flow from the investment is expected by the market to be 0.1 billion CHF in one year's time and to grow indefinitely by 92 = = 8%. The management of the firm, however, knows more than the market : In particular the maanagement knows that the free cash flow of the existing assets and new assets will evolve according to FCF = FCFt + piet andX = X₁ + p2et respectively, where FCF, and X, are the expectations of free cash flows of existing and new assets by the market, et is a zero mean noise term, p1 = 0.8 and p2 = 0.6. Assume that the WACC for the firm isk= 10% and will stay thus, after the equity issuance, after appropriate rebalancing of the debt so that leverage stays at its permanent level L = 20%. Furthermore assume that M = (0₁ + 02) et 1 (1 k) is uniformly distributed on [-5,5] which means the pdf is for M€ [-5,5] and the cdf Pr(M ≤ y) = 5 for y € [-5,5]. 10 Find the fraction a € (0,1) of shares the firm needs to offer to outside investors, in order to raise the required capital. Rextesla Industrial is a company which wants to raise 4 billion CHF by means of equity issuance. Using the last available financial statements, its free cash flow stands at 1 billion, and without the equity issuance, that cash flow is expected by the market to grow at g₁ = 2% per year indefinitely. Rextesla is planning to use the equity issuance proceeds in an expansion of its production capacity. The first cash flow from the investment is expected by the market to be 0.1 billion CHF in one year's time and to grow indefinitely by 92 = = 8%. The management of the firm, however, knows more than the market : In particular the maanagement knows that the free cash flow of the existing assets and new assets will evolve according to FCF = FCFt + piet andX = X₁ + p2et respectively, where FCF, and X, are the expectations of free cash flows of existing and new assets by the market, et is a zero mean noise term, p1 = 0.8 and p2 = 0.6. Assume that the WACC for the firm isk= 10% and will stay thus, after the equity issuance, after appropriate rebalancing of the debt so that leverage stays at its permanent level L = 20%. Furthermore assume that M = (0₁ + 02) et 1 (1 k) is uniformly distributed on [-5,5] which means the pdf is for M€ [-5,5] and the cdf Pr(M ≤ y) = 5 for y € [-5,5]. 10 Find the fraction a € (0,1) of shares the firm needs to offer to outside investors, in order to raise the required capital.
Expert Answer:
Answer rating: 100% (QA)
To determine the fraction of shares that Rextesla Industrial needs to offer to outside investors we ... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Read the case study "Southwest Airlines," found in Part 2 of your textbook. Review the "Guide to Case Analysis" found on pp. CA1 - CA11 of your textbook. (This guide follows the last case in the...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Question. Consider the inverse demand function P=20-Q and the inverse supply function P=2+Q. Find (a) equilibrium price P* and Q*, (b) consumers surplus (CS), producers surplus (PS) and the total...
-
A boat is moving to the right with a constant deceleration of 0.3 m/s2 when a boy standing on the deck D throws a ball with an initial velocity relative to the deck which is vertical. The ball rises...
-
It is your first day in auditing class, and your instructor has explained how grades are going to be earned and recorded. Attendance (worth 5 percent) is going to be tracked with sign-in sheets,...
-
What the procedures are for a third-party stakeholder to deposit funds with the court?
-
You are designing an adder for the blindingly fast 2-bit RePentium Processor. The adder is built from two full adders such that the carry out of the first adder is the carry in to the second adder,...
-
4. Operations and processes differ in four Vs, including volume, variety, variation, and visibility. Compare the following companies based on the specified 'V' and explain your reasoning. (10 Points)...
-
An experiment was conducted regarding a quantitative analysis of factors found in high-density lipoprotein (HDL) in a sample of human blood serum. Three variables thought to be predictive of, or...
-
Define = ( + ), and o, =-i( -), where the o' are Pauli spin matrices and f,f* obey anti-commutation relations {f, f}=0,{f, f}=1. Then o is given by (a) f*f-1 (b) 2ff-1 (c) 2 f* f +1 (d) f* f
-
As a team, discuss projects that you are currently working on or would like to work on to benefit yourself, your employers, your family, or the broader community. Come up with at least ten projects,...
-
Describe four analytical procedures that may be applied to long-term investments and intangibles.
-
When testing a hypothesis for a proportion, we assume that the items in the population are divided into two categories. In Exercises 7 and 8, determine whether the statement is true or false. If the...
-
An auditor will request a cutoff bank statement primarily to a. Verify the cash balance on the client's bank reconciliation. b. Detect lapping. c. Verify reconciling items on the client's bank...
-
What functions can you perform with project management software? What are the main differences between low-end, midrange, and high-end tools?
-
Problem 4. Asymptotic Notation Prove or disprove the following statements. (1) 4n+25n-2022 = N(n). (2) n - log10 n = w(n) (3) 2n = 4n+ 0(22m). (4) n log (n) + O(n) = e(n log10(n)). (5) n log (log3 n)...
-
Shreemaya Hotel in !adore was facing a problem of low demand for its rooms due to off season. The Managing Director (MD) of the hotel, Mrs. Sakina was very worried. She called upon the Marketing...
-
Flash Fashions plc has had a difficult nine months and the management team is discussing strategy for the final quarter. In the last nine months the company has survived by cutting production,...
-
The following information (in m) relates to the defined benefit scheme of Basil plc for the year ended 31 December 20X7: Fair value of plan assets at 1 January 20X7 3,150 and at 31 December 20X7...
-
Omega prepares financial statements under International Financial Reporting Standards. In the year ended 31 March 2007 the following transaction occurred: Omega follows the revaluation model when...
-
Franco Company's net income and preferred dividends are \(\$ 44,000\) and \(\$ 4,000\), respectively, and average total common shareholders' equity is \(\$ 384,000\). How much is Franco's return on...
-
Jackson Auto Glass's accounting records carried the following accounts at January 31,2008. Requirements 1. Journalize all of Jackson's closing entries at January 31, 2008. Use a Jackson, Capital...
-
A company declares a \(5 \%\) stock dividend. The debit to Retained Earnings is an amount equal to the a. stated value of original shares. b. excess of the market price over the original issue price...
Study smarter with the SolutionInn App