ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,666,667 shares outstanding. The risk-free rate in the economy is 2.0 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1,50. And, of course, the tax rate is 40%. Currently, your company has $30,000,000 in perpetual debt outstanding. Your company has decided to issue new equity and use the proceeds to retire all of the debt (at par). When your company announced the debt retirement, the stock price reacted appropriately. Your company then issued the equity and retired the debt as planned. By how much did the price per share of your company's equity drop based on this transaction? You should use all M&M assumptions for this answer. Answer in X.XX format, with no punctuation, rounded up. For example, if your answer is $2.053. enter "2.06 ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,666,667 shares outstanding. The risk-free rate in the economy is 2.0 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1,50. And, of course, the tax rate is 40%. Currently, your company has $30,000,000 in perpetual debt outstanding. Your company has decided to issue new equity and use the proceeds to retire all of the debt (at par). When your company announced the debt retirement, the stock price reacted appropriately. Your company then issued the equity and retired the debt as planned. By how much did the price per share of your company's equity drop based on this transaction? You should use all M&M assumptions for this answer. Answer in X.XX format, with no punctuation, rounded up. For example, if your answer is $2.053. enter "2.06
Expert Answer:
Answer rating: 100% (QA)
To determine the drop in the price per share of the companys equity based on the debt retirement and equity issuance we can use the ModiglianiMiller M... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
Posted Date:
Students also viewed these finance questions
-
Sheehan Corp. is forecasting an EPS of $3.00 for the coming year on its 500,000 outstanding shares of stock. Its capital budget is forecasted at $800,000, and it is committed to maintaining a $2.00...
-
Assume that you have just been hired by Adams, Garitty, and Evans (AGE), a consulting firm that specializes in analyses of firms capital structures and dividend policies. Your boss has asked you to...
-
(a) the maximum shear stress magnitude T1 in aluminum tube (1). (b) the maximum shear stress magnitude T2 in brass shaft segment (2). (c) the maximum shear stress magnitude T3 in brass shaft segment...
-
evaluate the sine, cosine, and tangent of the angle without using a calculator. 1. 225 2. 300 3. 750 4. 675
-
Does the commonly reported solubility of an inorganic compound in water pertain to large crystals or small crystals? Why?
-
Wire \(1,5.0 \mathrm{~m}\) long and carrying a current of \(3.0 \mathrm{~A}\), experiences a magnetic force of magnitude \(4.0 \times 10^{-7} \mathrm{~N}\) when placed \(90 \mathrm{~mm}\) away from...
-
Rework Problem 25-1 using the Black-Scholes model to estimate the value of the option. Assume that the variance of the projects rate of return is 6.87% and that the risk-free rate is 8%.
-
(a) Equity of KGF Ltd. (KGFL) is Rs. 410 Crores, its debt, is worth Rs. 170 Crores. Printer Division segments value is attributable to 74%, which has an Asset Beta (p) of 1.45, balance value is...
-
How would the Highest interest rate to the Lowest credit card payment method apply a $1200 payment to a card with an outstanding balance of $2000 broken down as follows: Transaction Rate Balance...
-
Write a program that uses nested loops to print the output exactly as shown below . NOTE : You must use nested loops . ** *** **********
-
Proposals are examples of persuasive documents. In "real life" they are presented to some type of decision-making group that has the power to give approval to the request that is being made - often a...
-
D b D The goal of this exercise is to learn how to compute the x- and y-components of the electric field due to an arbitrary collection of point charges. Create a new Python program Import relevant...
-
Country X's imports are worth $40000 a year what, by standard definitions, would be an adequate level of reserves for Country X? Answer:
-
Thomas Haalboom recently received his first assignment after being promoted as the Chief Supply Chain Officer of an international manufacturer of home care products. He is going to have his first...
-
Identify a problem or issue related to practice, policy, population, or education that aligns with the organizational priorities you seek to solve. A. Develop a written proposal by doing the...
-
The following is an example of data on how fast 100 m run was performed (seconds). What type of distribution is this tabie showing? Time (seconds.) Frequency 10-15 15-20 24 20-25 18 O Rank order...
-
Provide a draft/outline of legal research involving an indigenous Canadian woman charged with assault causing bodily harm under (Sec 267b) of the Criminal Code, where the crown wants a 12-month jail...
-
Alumco Industries must install $1 million of new computer equipment in its Ontario plant. It can obtain a bank loan for 100% of the required amount. Alternatively, Alumco believes that it can arrange...
-
Betty Simmons, the new financial manager of Okanagan Chemicals Ltd. (OCL), a B.C. producer of specialized chemicals for use in fruit orchards, must prepare a financial forecast for 2013. OCL's 2012...
-
You are considering an investment in the common stock of Crisp's Cookware. The stock is expected to pay a dividend of $2 a share at the end of the year (D1 = $2.00). The stock has a beta equal to...
-
A summary of the Balgreen Bowling Club's cash book is shown below. From it, and the additional information, you are to construct an income and expenditure account for the year ending 31 December...
-
The following trial balance of the Grampian Golf Club was extracted from the books as on 31 December 2016: (1) Bar purchases and sales were on a cash basis. Bar inventory at 31 December 2016 was...
-
Why do you think non-profit-oriented organizations prepare receipts and payments accounts when they have all this information in the cash book already?
Study smarter with the SolutionInn App