The firm's cost of capital (WACC) is 14%. The firm has been growing at 5% for...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The firm's cost of capital (WACC) is 14%. The firm has been growing at 5% for the past six years but is expected to grow at a constant rate of 4% in the future. The firm has 24.00 million shares outstanding. The company has $256.00 million in debt and $160.00 million in preferred stock. Along with the rest of the finance team, Jessica has been part of board meetings and knows that the company is planning to distribute $60.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Jessica also observed that, at this point, apart from the $60.00 million in short-term investments, the firm has no other nonoperating assets. Using results from Jessica's calculations and observations, solve for the values in the following tables. (Note: Round your answers to two decimal places.) Value of the firm's operations Intrinsic value of equity immediately prior to stock repurchase Intrinsic stock price immediately prior to the stock repurchase Number of shares repurchased Intrinsic value of equity immediately after the stock repurchase Intrinsic stock price immediately after the stock repurchase Value Value Based on your understanding of stock repurchases, identify whether the following statement is true or false: If a firm pays a dividend of $0.59 per share, the firm's stock price will also fall by $0.59 per share. This statement is because if a firm pays a dividend of $0.59 per share, the price per share of the firm's stock will also fall by $0.59 to any arbitrage opportunities. The firm's cost of capital (WACC) is 14%. The firm has been growing at 5% for the past six years but is expected to grow at a constant rate of 4% in the future. The firm has 24.00 million shares outstanding. The company has $256.00 million in debt and $160.00 million in preferred stock. Along with the rest of the finance team, Jessica has been part of board meetings and knows that the company is planning to distribute $60.00 million, which is invested in short-term investments, to its shareholders by buying back stock from its shareholders. Jessica also observed that, at this point, apart from the $60.00 million in short-term investments, the firm has no other nonoperating assets. Using results from Jessica's calculations and observations, solve for the values in the following tables. (Note: Round your answers to two decimal places.) Value of the firm's operations Intrinsic value of equity immediately prior to stock repurchase Intrinsic stock price immediately prior to the stock repurchase Number of shares repurchased Intrinsic value of equity immediately after the stock repurchase Intrinsic stock price immediately after the stock repurchase Value Value Based on your understanding of stock repurchases, identify whether the following statement is true or false: If a firm pays a dividend of $0.59 per share, the firm's stock price will also fall by $0.59 per share. This statement is because if a firm pays a dividend of $0.59 per share, the price per share of the firm's stock will also fall by $0.59 to any arbitrage opportunities.
Expert Answer:
Answer rating: 100% (QA)
To calculate the values requested we need to work through the analysis step by step 1 Value of the firms operations Value of the firms operations EBIT ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these finance questions
-
Lindsay is the 100% shareholder of the ABC Corp, which was incorporated in 2010.Lindsay was informed by the company accountant that her corporation earned profit in the year 2020 but incurreed no...
-
When dealing with a recession, governments may... a) increase spending b) raise taxes c) increase regulations d) decrease spending
-
The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand-woven blankets for an average price of $30 per blanket. Kerry buys the blankets from...
-
Two 3-m-long and 0.4-cm-thick cast iron (k = 52 W/m·K) steam pipes of outer diameter 10 cm are connected to each other through two 1-cm-thick flanges of outer diameter 20 cm. The steam flows...
-
For an ideal gas, the compressibility factor at all temperatures and pressures is (a) 1 (b) 0 (c) -1 (d) \(\infty\).
-
Woodlawn Manufacturing produces a variety of industrial valves. The company is preparing its cash budget for the upcoming third quarter. The following transactions are expected to occur: a. Cash...
-
Sheridan Limited is a Niagara-on-the-Lake, Ontario-based winery producing blended, premium, and ultra-premium wines, which are sold globally. The company has a strong distribution network in Canada...
-
story below appeared in the Ioronto Sun newspaper in March 2011. After reading it, please answer the following questions: 1. Under the Ontario Human Rights Code, which prohibited grounds, if any, are...
-
Develop a StdRandom client (with appropriate static methods of its own) to study the following problem: Suppose that in a population of 100 million voters, \(51 \%\) vote for candidate \(A\) and \(49...
-
Suppose that \(x_{i}\) is endogenous in the regression \(y_{i}=\beta_{1}+\beta_{2} x_{i}+e_{i}\). Suppose that \(z_{i}\) is an instrumental variable that takes two values, one and zero. a. Let...
-
The governing equation for an RLC circuit driven by the applied voltage \(v_{a}(t)\) is derived as \[L \frac{d i}{d t}+R i+\frac{1}{C} \int i d t=v_{a}(t)\] where \(L=4 \mathrm{H}, R=4 \Omega\), and...
-
Three cards are drawn in succession from a deck of 52 cards (without replacement). Let \(D_{1}=\{\) diamond is drawn on the first draw \(\}\), \(D_{2}=\{\) diamond is drawn on the second draw \(\}\),...
-
Devise a diagram outlining the difference between e-business, digital marketing and e-commerce.
-
I have a balloon that has a mass of 11 g. When I fill it up with helium such that it blows up to a perfect spherical shape with diameter of 50 cm. 2.1 Determine the overall mass of the blown-up...
-
Choose a company from the SEC EDGAR Web site for your Key Assignment to evaluate for the impact of convergence to IFRS. Review the financial reports and notes of the company you have chosen from the...
-
The Wayne Corporation desires to expand. It is considering a cash purchase of the Gretz Corporation, a company in a similar business, for $3 million. The Gretz Corporation has a $600,000 tax loss...
-
The 20-year A-rated bonds of Polly Cracker Company were initially issued at a 10 percent yield (paid semiannually). After 5 years, the bonds have been upgraded to AA. Such bonds are currently...
-
Why is interest expense said to cost the firm substantially less than the actual expense, while dividends cost it 100 percent of the outlay?
-
What is the pro forma statement, and how important is it for a business?
-
Briefly compare replacement value to liquidation value of an asset.
-
What do we mean by budgeting, and how would this process serve the firm?
Study smarter with the SolutionInn App