Suppose that Macbeth Spot Removers issues only $2,500 of debt and uses the proceeds to repurchase 250
Question:
a. Rework Table to show how earnings per share and share return now vary with operating income.
b. If the beta of Macbeths assets is .8 and its debt is risk-free, what would be the beta of the equity after the debtissue?
Transcribed Image Text:
TABLE Data Number of shares Price per share Market value of shares Market value of debt Interest at 10% 500 S10 $5,000 $5,000 $500 Outcomes Operating income (S) Interest (S) Equity earnings (S) Earnings per share (S) Return on shares (%) 500 1,000 500 500 0 500 1,500 2,000 500 1,000 1,500 500 10 20 30 Expected outcome
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 66% (15 reviews)
a b 8 25 x 0 75 x E E 107 Operating inc...View the full answer
Answered By
Susan Juma
I'm available and reachable 24/7. I have high experience in helping students with their assignments, proposals, and dissertations. Most importantly, I'm a professional accountant and I can handle all kinds of accounting and finance problems.
4.40+
15+ Reviews
45+ Question Solved
Related Book For
Principles of Corporate Finance
ISBN: 978-0077404895
10th Edition
Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen
Question Posted:
Students also viewed these Corporate Finance questions
-
Describe how earnings per share is calculated, and discuss the purpose of producing basic and diluted earnings per share ratios for a company.
-
Ralph Co. manufactures products on a job-order basis. Job 4 is an order for 100 units. It requires $3,000 direct materials, $1,000 direct labor, and $1,500 overhead applied based on 150% the direct...
-
Now suppose that with leverage, Kohwes expected free cash flows will decline to $9 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate...
-
Two Amps are connected in series the first amplifier is an inverting amplifier and the second amplifier is a non-inverting amplifier, which of the following resistors produce a gain of -36? Amp1 (Ri...
-
In a sample of 100 steel wires the average breaking strength is 50 kN, with a standard deviation of 2 kN. a. Find a 95% confidence interval for the mean breaking strength of this type of wire. b....
-
A firm's product sells for $4 per unit in a highly competitive market. The firm produces output using capital (which it rents at $25 per hour) and labor (which is paid a wage of $30 per hour under a...
-
Consider the vector \(u\) that consists of 32 equally spaced samples of the function \(f(t) \approx \cos (4 \pi t)\) on the interval [0,1]. That is, \(u_{1}=f(0), u_{2}=\) \(f\left(\frac{1}{32}...
-
Muscle Bound is chain of fitness stows located in many large shopping centers. Recently, an internal memo from the CEO to all operations personnel complained about the budget overruns at Muscle...
-
The following information pertains to the City of Williamson for 2 0 2 4 , its first year of legal existence. For convenience, assume that all transactions are for the general fund, which has three...
-
This is a new manufacturing corporation that issued $50000 common stock for cash on the first day. All overhead expenses are paid immediately by cash. To make it easy, there are no other operating...
-
The common stock and debt of Northern Sludge are valued at $50 million and $30 million, respectively. Investors currently require a 16% return on the common stock and an 8% return on the debt. If...
-
True or false a. MMs propositions assume perfect financial markets, with no distorting taxes or other imperfections. b. MMs proposition 1 says that corporate borrowing increases earnings per share...
-
A 3-m 2 black surface at 140C is losing heat to the surrounding air at 35C by convection with a heat transfer coefficient of 16 W/m 2 K, and by radiation to the surrounding surfaces at 15C. The...
-
The money multiplier links the monetary base to the quantity of money in the economy. a. The size of the money multiplier depends on: i. The reserve requirement. ii. Banks desire to hold excess...
-
The strategy of inflation targeting, which seeks to keep inflation close to a numerical goal over a reasonable horizon, has been referred to as a policy framework of constrained discretion. What...
-
Individually or in teams, develop a five- to ten-minute presentation about the importance of EQ for effective communication in the workplace. Describe each of the four dimensions of emotional...
-
The interest rate paid by the European Central Bank (ECB) on excess reserves declined below zero in 2014 (and remained there as of 2019). What was the rationale behind this move to a negative deposit...
-
Individually or in teams, develop a five- to ten-minute presentation about how to avoid miscommunication in the workplace. Use terms such as noise, filter, encoding, and decoding to explain...
-
Encode the following Unicode code points in UTF-8. Show the binary and hexadecimal value for each encoding: (a) U+0040. (b) U+00A2. (c) U+20AC. (d) U+1F6B2.
-
Graph one period of each function. y = 4 cos x
-
What aspects of population policy alternatives including their strengths and weaknessesare illustrated by the cases of China and India?
-
Look back at project A in Section 9.6. Now assume that a. Expected cash flow is $150 per year for five years. b. The risk-free rate of interest is 5 percent. c. The market risk premium is 6 percent....
-
A project has the following forecasted cash flows: The estimated project beta is 1.5. The market return r m ? is 16 percent, and the risk-free rate r f ? is 7 percent. a. Estimate the opportunity...
-
The McGregor Whisky Company is proposing to market diet scotch. The product will first be test-marketed for two years in southern California at an initial cost of $500,000. This test launch is not...
-
What effect does an antagonist drug have over the receptors ?
-
Read this article on the differences and Comparisons between UNIX and LINUX http://www.diffen.com/difference/Linux_vs_Unix, then do some research and post your thoughts on each of the systems. Based...
-
Assume that in 2023, Bobby had a vacant lot that was given to him as a gift from his father that had an FMV of $40,000 and an adjusted basis of $15,000.
Study smarter with the SolutionInn App