Dry Water Ltd is a very cash-rich water treatment company. Analysts estimate that the company's cash...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Dry Water Ltd is a very cash-rich water treatment company. Analysts estimate that the company's cash assets are $30m in excess of its normal business needs. Investors have not been happy with this situation as reflected in the low valuation of Dry Water shares. It has been trading at a current P/E of 4x versus the industry average normal P/E of 7x. Dry Water Ltd's recent financials: Total assets Total equity Total number of common shares Net after-tax profits Earnings per share Asset value per share Return on assets Interest rate receivable on cash deposits Interest rate payable on long-term loans Tax rate $250.00m $150.00m 20.00m $37.50m $1.8750 $12.5000 20.75% 1.00% p.a. 5.00% p.a. 20.00% You just heard a rumour that Dry Water's management is concerned about the low valuation on its shares and is considering spending $30m to carry out a share buy-back. a. b. For the calculations below, show all workings and answers to two decimal places. i. Calculate the number of shares that Dry Water Ltd will have after the share buy-back at its current share price. [16m] ii. iii. Calculate the new Return on assets for Dry Water Ltd after the share buy-back.[23.44%] Calculate the new EPS and new Share price for Dry Water Ltd after the share buy-back. Assume that Dry Water Ltd's shares will be able to trade at a 20% discount to its industry normal P/E after the share buy-back. [EPS $2.33; Share price $13.04] Discuss three (3) possible reasons why Dry Water Ltd's P/E would move up towards the industry average after the share buy-back (as suggested in a-iii). Dry Water Ltd is a very cash-rich water treatment company. Analysts estimate that the company's cash assets are $30m in excess of its normal business needs. Investors have not been happy with this situation as reflected in the low valuation of Dry Water shares. It has been trading at a current P/E of 4x versus the industry average normal P/E of 7x. Dry Water Ltd's recent financials: Total assets Total equity Total number of common shares Net after-tax profits Earnings per share Asset value per share Return on assets Interest rate receivable on cash deposits Interest rate payable on long-term loans Tax rate $250.00m $150.00m 20.00m $37.50m $1.8750 $12.5000 20.75% 1.00% p.a. 5.00% p.a. 20.00% You just heard a rumour that Dry Water's management is concerned about the low valuation on its shares and is considering spending $30m to carry out a share buy-back. a. b. For the calculations below, show all workings and answers to two decimal places. i. Calculate the number of shares that Dry Water Ltd will have after the share buy-back at its current share price. [16m] ii. iii. Calculate the new Return on assets for Dry Water Ltd after the share buy-back.[23.44%] Calculate the new EPS and new Share price for Dry Water Ltd after the share buy-back. Assume that Dry Water Ltd's shares will be able to trade at a 20% discount to its industry normal P/E after the share buy-back. [EPS $2.33; Share price $13.04] Discuss three (3) possible reasons why Dry Water Ltd's P/E would move up towards the industry average after the share buy-back (as suggested in a-iii).
Expert Answer:
Answer rating: 100% (QA)
a i To calculate the number of shares that Dry Water Ltd will have after the share buyback at its current share price you can use the formula New Numb... View the full answer
Related Book For
Financial Accounting and Reporting a Global Perspective
ISBN: 978-1408076866
4th edition
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
Posted Date:
Students also viewed these corporate finance questions
-
Your manager wants to implement RBAC functionality. Your shop uses a UNIX system. You do not have a system with an implementation of RBAC available to you. You have the basic capabilities of...
-
How does HCA's financial strategy affect its product-market strategy? How important is finance to HCA and in what ways? (Please no plagiarism) Hospital Corporation of America (A) In January of 1982...
-
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...
-
A sample of size n is randomly selected from a non-normal population with mean and standard deviation o. a. Describe the mean and standard deviation of the sampling distribution of X for all samples...
-
Nonmonetary Exchanges on August 1, Hyde, Inc. exchanged productive assets with Wiggins, Inc. Hydes asset are referred to below as Asset A, and Wiggins is referred to as Asset B. The following facts...
-
In Problems 1-3, find the image of the rectangle with the given corners and find the Jacobian of the transformation. 1. x = u + 2v, y = u - 2v; (0,0), (2,0),(2, 1), (0, 1) 2. x = 2u + 3v, y = u - v;...
-
Dr. Wayside works at a local clinic as a general practitioner. Because she has significant unsecured debt, Dr. Wayside decided to petition the United States Bankruptcy Court for relief under Chapter...
-
Part One: In 2012, Penny Henderson opened Pennys Posies, a small retail shop selling floral arrangements. On December 31, 2013, her accounting records show the following: Sales...
-
1. 120g of an organic compound that contains only carbon and hydrogen gives 330g of CO2 and 270g of water on complete combustion. The percentage of carbon and hydrogen, respectively are (a) 25 and 75...
-
Corrie wants to earn a net operating income of $10,000 this month. She currently sells her product for $50 each, has $10 of variable expense per product, and incurs $5,000 of fixed expenses. How many...
-
Comparative balance sheets and an income statement for Joe Smith Company are presented below. Using the indirect method, prepare in proper financial statement format a statement of cash flows for the...
-
In Problems 21-38, guess the requested limits. \(\lim _{n ightarrow \infty} \frac{1}{2 n}\)
-
In Problems 21-38, guess the requested limits. \(\lim _{n ightarrow \infty} \frac{n+1}{n+2}\)
-
Show that \(2 x^{2}\) is an antiderivative of \(4 x\).
-
Show that \(x^{2}\) is an antiderivative of \(2 x\).
-
In Problems 21-38, guess the requested limits. \(\lim _{n ightarrow \infty} \frac{2 n}{n+4}\)
-
Write a Java Project in IntelliJ that reads in data from three text files, Names, Sales, and CommisionRates, and loads the data into three parallel arrays. Use the data in Sales and Commission Rate...
-
For Problem estimate the change in y for the given change in x. y = f(x), f'(12) = 30, x increases from 12 to 12.2
-
The Smetana Company has a commercial activity in the beauty products and cosmetics sector. Required Analyze the statement of cash flows prepared in Assignment 14.2 Smetana Company (1), in Chapter 14.
-
Multiple Choice Questions 1. Which of the situations described below would mean the firm analyzed is caught in a scissor effect (a) Its interest expense grows faster than its labor compensation...
-
Finland-based UPM products include pulp, paper, plywood, sawn timber, labels and composites, bio energy, bio fuels for transport, bio chemicals and nano products. The company is the worlds leading...
-
The population of unemployed adults has ages with mean m and standard deviations. Samples of unemployed adults are randomly selected so that there are exactly 100 in each sample. For each sample, the...
-
The percentage of heights less than 144 centimeters
-
In this section, it was noted that the standard deviation of sample means is s/1n. In that expression, what does s represent and what does n represent?
Study smarter with the SolutionInn App