Assume that your company is an all-equity firm with 2,000,000 shares outstanding. The company's EBIT is...
Fantastic news! We've Found the answer you've been seeking!
Question:
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/05/664942287fed9_09566494227c4857.jpg)
Transcribed Image Text:
Assume that your company is an all-equity firm with 2,000,000 shares outstanding. The company's EBIT is currently $10,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year; its growth is zero, its earnings per share equals its dividends per share, and the company's tax rate is 40 percent. The risk-free rate in the economy is 4 percent, and the market risk premium is 5 percent. The company's beta is currently 1.00 The company is considering issuing $25.0 million worth of bonds (at par) and using the proceeds for a stock repurchase. The firm's cost of this debt (their annual coupon rate) would be 5.5 percent. The company's investment bankers estimate that the company's beta would rise to 1.35 if it proceeds with the recapitalization. Assume that the market does anticipate an increase in value when the firm announces that it will recapitalize, so that the firm must repurchase all shares at what will be the post- repurchase equilibrium price per share. Given this information, determine what the earnings per share will be after the recapitalization is completed. Answer in dollars and cents, truncated to the nearest cent. For example, if your answer is $15.889, enter "15.88". Assume that your company is an all-equity firm with 2,000,000 shares outstanding. The company's EBIT is currently $10,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year; its growth is zero, its earnings per share equals its dividends per share, and the company's tax rate is 40 percent. The risk-free rate in the economy is 4 percent, and the market risk premium is 5 percent. The company's beta is currently 1.00 The company is considering issuing $25.0 million worth of bonds (at par) and using the proceeds for a stock repurchase. The firm's cost of this debt (their annual coupon rate) would be 5.5 percent. The company's investment bankers estimate that the company's beta would rise to 1.35 if it proceeds with the recapitalization. Assume that the market does anticipate an increase in value when the firm announces that it will recapitalize, so that the firm must repurchase all shares at what will be the post- repurchase equilibrium price per share. Given this information, determine what the earnings per share will be after the recapitalization is completed. Answer in dollars and cents, truncated to the nearest cent. For example, if your answer is $15.889, enter "15.88".
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Cadmium is a highly toxic substance with lethal effects on the human body in concentrations greater than 4.4 x 10-mol/L. Cadmium (II) carbonate has a Kp of 5.2 x 10-12 at 25C. Calculate the...
-
Determine the moment produced by the force F about point A in terms of the angle ?. Plot the graph of M A versus ?, where 0? ? ? ? 180?. ? 1.5 m F-6kN 6m
-
Why is it important to manage project knowledge during execution? Provide one example of how this can be done.
-
Why might interdisciplinary teams, as defined in this chapter, be more efficient than multidisciplinary teams?
-
Income statement information for Nguyen Corporation in 2011 is as follows: a. Administrative expenses, $110,000 b. Cost of goods sold, $440,000 c. Extraordinary loss from a storm (net of taxes,...
-
The taxable income levels in the married filing jointly tax rate schedule are those in the married filing separately schedule. Multiple Choice the same as double half the amount of None of the...
-
I need help with an update for my Business Model Canvas for Walnaets SmartShop Navigator: Key Partners: Have there been any changes in strategic alliances or partnerships? key activities: Are there
-
Tom is a Health Care Assistant in a residential care facility. One afternoon, he observes that Mrs. White seems upset. He asks her if anything is wrong and she starts to cry. She tells Tom that her...
-
When considering an eportfolio tool usage to showcase your work and achievement. What does this provide to potential employers? Would a short blog or video be necessary to capture the attention of...
-
Consider the function defined by f(x)=x^23 . Find f(1)and f(4) . Then find the equation of the secant line g(x) that passes through (x1,f(x1) and (x2,f(2)) Enter the value of f(1) Enter the value of...
-
Assume that the existing debt has covenants barring firm X from issuing new senior debt without all creditors consent. The shareholders and creditors must therefore negotiate. g. Say a negotiator...
-
a) There is a lot of new types of capital source outside of the traditional stock and debt. Please describe at least two types of new capital sources b) IPO underwriters are specialized in advising...
-
if you invest $250 at the end of each month for the next 7 years into an account that has an interest rate of 8.4% per year, compounded monthly, how much will you have in the account 7 years from...
-
Explain how the graph of each function can be obtained from the graph of y = 1/x or y = 1/x 2 . Then graph f and give the (a) Domain (b) Range. Determine the largest open intervals of the domain over...
-
Of all the events that occur each day, how would you describe those that are recorded in a firm's accounting records? LO11
-
How are the financial statements related to accounting standards? LO10
-
In analyzing a transaction, can a transaction only affect one side of the basic accounting equation? If so, give an example. LO12
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App