F2. 1. Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders’ preference, the company wants to get rid of all its debt. Answer the below questions a. Before recapitalization, what is the WACC? b. Before recapitalization, what is the value of the firm?
Q: What is the total option payoHf if you buy one European put option ( 100 sharea) with a sthike of…
A: Pay off of the put option is the difference between the net price and spot price at expiration if…
Q: Determine the value of dividends for years 1, 2, and 3. $5, $5.3, $5.62 $5.3, $5.62, $5.96 $5,55,55…
A: Dividend are paid out of the net income but the dividend are grown at constant rate or variable…
Q: b. What is the balance of the loan at the end of year Round to the nearest cent c. By how much will…
A: Loans are paid by the monthly payments that carry the payment for interest and payment for principal…
Q: 2.2 An investor enters a futures contract on SBI stock at Rs 534 to w the futures price is Rs 535.…
A: The futures are traded on the stock market with some initial margins only and so there are high…
Q: You have just married and are already worried about college for your kids even though you don't have…
A: The concept of money's time value elaborates that any sum of money is worth more currently than it…
Q: if a firm has had sales which h been extremely variable, the f should Question 1 options:
A: The sales depend on the many factors and all these factors are not under company and some are beyond…
Q: You have just been employed as an investment analyst in an investment bank. You took over from…
A: The amount that a present investment will gain in value over time when kept in a compound interest…
Q: are currently investigating a stock with per share earnings of $1.73. The current price of the stock…
A: The P/E ratio is the important measure to value the stocks and compare the similar companies and it…
Q: 15- The common stock of Permanent Assurance Corporation currently trades at $40.00 per share, which…
A: The monetary ratio termed as "dividend yield" assesses the amount of cash dividends paid to…
Q: h of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)?…
A: CAPM model is the main model used to predict the risk based rate of return on the stock and tells us…
Q: he historical returns for the past three years for Stock B and the stock market portfolio are Stock…
A: CONCEPT. β = covariancevariance ( market )
Q: You have approached your local bank for a start-up loan commitment for $370,000 needed to open a…
A: Tota Interest and fees on the loan committment will be the interest paid in one year and the toal of…
Q: BM stock currently sells for 64 dollars per share. The implied volatility equals 40.0. The risk-free…
A: A call option is an agreement between the seller of the option and the purchaser of the option. As…
Q: However, redesigning the cabin means rethinking many other elements of the airplane as well, like…
A: The rate of return refers to the minimum return that is earned by an investor on teh investment…
Q: ountain Sounds Corp. is evaluating a cost savings project. The project's expected operational life…
A: The net present value is main capital budgeting technique based on the time value of money and it…
Q: buying a house The bank is requiring a) Determine the required down payment. b) Determine the amount…
A: A loan is a contract between the loan taker and the loan provider. In This contract, loan providers…
Q: 2. Bob purchases a 10-year 1000 par value bond which pays 6% coupons annually. The redemption value…
A: Solution:- Bond price means the price at which the bond of the company is currently trading in the…
Q: Federal prosecutors see greed as the motivating factor for corporate crime. O True False
A: Non violent corporate crime such as insider trading, embezzlement are common examples that are…
Q: profile-image Klieman Company’s perpetual preferred stock sells for $86 per share and pays a $10…
A: Annual dividend (D) = $10 Current price (P0) = $86 Flotation cost (F) = 0.054 Cost of preferred…
Q: Extracts from group financial statements of AB, a public limited company, year ended April 30, 2021.…
A: Given Profit from continuing operations = OMR35,000 Minority interest distributed = OMR1,500…
Q: What would be the approximate expected price of a stock when dividends are expected to grow at a 25%…
A: Dividend The main purpose of investing in companies is to earn dividends. It is the regular payment…
Q: obert wishes to obtain auto insurance. He wants 10/20/5 liability coverage, $250 deductible…
A: Vehicles need insurance because there is always risk when you drive but that must be covered by…
Q: Renaissance Capital Group is considering allocating a limited amount of capital investment funds…
A: Payback period Net present value Present value index
Q: the call money rate is 6.8 percent, and you pay a spread of 1.9 percent over that. You buy 1,300…
A: In the trading there is margin given by the brokers so that they clients can earn more and the…
Q: What would be the brief breakdown of the financial requirements to startup food truck in london
A: Introduction: Starting a food truck business in London can be a cost-effective and rewarding…
Q: Q4 Diva Dance Company, a manufacturer of dance and exercise apparel, is considering replacing an…
A: Note. According to bartleby guidelines ,if question involves multiple sub parts , then 1st sub 3…
Q: Michelle borrows $7, 200 from her father to buy a used car. She repays him after 9 months, at an…
A: Total amount she repays at the end is calculated using following equation Total amount = P×1+rt…
Q: Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the…
A: The expected return is the profit or return that an investor expects to receive from the investment…
Q: Steve's, a maker of swizzle sticks, is considering the purchase of a new plastic stamping machine.…
A: The IRR is the rate at which the Net present value is zero. It is the rate at which the present…
Q: tockton Mineral Operations (SMO) currently has 310,000 shares of stock outstanding that sell for $94…
A: As per the Honor code of Bartleby we are bound to given the answer of first three sub part only,…
Q: wo financing options are being evaluated. Which should I select? Option 1 60% equity at 12% and a…
A: To determine which option is better we will compute the weighted average cost of each option. The…
Q: Problems Under Armour, Inc. is an American supplier of sportswear and casual apparel. Following are…
A: As per our guidelines, we are supposed to answer only 3 sub-parts (if there are multiple sub-parts…
Q: Ninecent Corporation has a target capital structure of 60 percent common stock, 5 percent preferred…
A: A company's average after-tax cost of capital from all sources, including common stock, preferred…
Q: ike Jones bought a new split-level home for $150,000 with 20% down. He decided to use Quicken Loans…
A: Mortgage loans are secured loans because the home is collateral and lender can sell the home and can…
Q: adik Industries must install $1 million of new machinery in its Texas plant. It can obtain a 6-year…
A: 1 Million Payments - $320,000 $170,000
Q: Light emitting diode (LEDs) light bulbs have become required in recent years, but do they make…
A: Let us denote W=Wattage C=Cost per kilo watt hour H= No. of hours per year
Q: Assume that all participants in the following have an interest rate or discount rate of 10%. A firm…
A:
Q: 1. A company’s share is currently traded at the price of £18.49. A dividend on this share is paid…
A: GIven: Current Price (S0) = 18.49 Strike Price (K)= 18 Time Period (t) =6 months =0.5 Years European…
Q: Z has an equity beta of 1.35. XYZ’s equity value is $1,200. XYZ has US dollar net debt of $300 and…
A: The beta shows the risk related to the overall market and Beta is the weighted average beta of both…
Q: Issued 10 year 6% bonds 3 years agon with a put option of 1000 exercisable at the end of year 3. the…
A: Bonds are fixed-income assets that serve as a representation of investor loans to borrowers…
Q: What are some moral hazard issues with structured finance?
A: Introduction : Moral hazard is an economic term used to describe a situation in which one party in a…
Q: Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan…
A: Here, Particulars Values Borrowed amount $15,000.00 Interest rate 14.00% Time period 3.00…
Q: There is a portfolio of two assets - 30% investment in Stock A and 70% investment in Stock B. The…
A:
Q: • What are the most commonly used primary investment criteria. Click all that apply NPV Capital…
A: Solution:- Investment criteria means the methods by which a firm decides which project to accept or…
Q: Interest prepaid by the buyer, which may be used to reduce the stated interest rate the lender…
A: Margin in loan is the down payment made on the total cost of the house or asset bought. The loan…
Q: LO 1 24. Calculating Annuity Future Values. You are to make monthly deposits of $500 into a…
A: Solution:- When an equal amount is deposited each period at end of period, it is called ordinary…
Q: Calculate the net asset value (in $) and number of shares purchased for the mutual fund. Round…
A: The unit cost of a mutual fund scheme is referred to as NAV or net asset value. It is used as the…
Q: A person invested $6O00 in stock the market. The economy was bulling and return was 9% on average…
A: The amount of investment done in the stock market is risky sometime more returns and some time less…
Q: An Asian option is a European type of derivative, it cannot be priced using a binomial tree because…
A: Asian option tends to decrease volatility on the basis of options whose payoffs are a single price…
Q: 20. As a trader in a bank, you are asked to provide a 2-year FX forward quote on GBP/JP The current…
A: The theory that states that an investor will not earn arbitrage profit by making investments in…
F2.
1. Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its
Answer the below questions
a. Before recapitalization, what is the WACC?
b. Before recapitalization, what is the value of the firm?
Step by step
Solved in 4 steps
- Ma1. Please give only typed answer. Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders' preference, the company wants to get rid of all its debt. Before recapitalization, what is the value of the firm? $25,000,000 $20,000,000 $80,000,000 $30,000,000 $50,000,000N7 Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders’ preference, the company wants to get rid of all its debt. After recapitalization, what is the cost of equity?KMS corporation has assets of $650 million, $65 million of which are cash. It has debt of $216.7 million. If KMS repurchases $21.7 million of its stock: a. What changes will occur on its balance sheet? b. What will be its new leverage ratio? a. What changes will occur on its balance sheet? (Select the best choice below.) A. Both the cash balance and shareholder equity will drop by $21.7 million. B. Both the cash balance and shareholder equity will increase by $21.7 million. C. Both accounts receivable and shareholder equity will drop by $21.7 million. D. Debt will increase by $21.7 million and shareholder equity will decrease by $21.7 million. b. What will be its new leverage ratio? The new leverage ratio after the repurchase is %. (Round to one decimal place.)
- 2. Qlink Ltd is involved in manufacturing of fast-moving consumer goods. The firm is currently an all-equity firm with 30 million shares outstanding and a stock price of Kshs. 10 per share. The firm plans to announce that it will borrow Kshs.400 million and use the funds to repurchase shares. The firm will pay interest only on this debt and has no plans to change its debt holding in future. The prevailing corporate tax rate is 30%. (i) What is the market value of the firm's existing assets before the announcement? (ii) What is the market value of the firm's assets (including tax shields) just after the debt is issued but before the shares are repurchased? (iii)What is the firm's share price just before the share repurchase? How many shares will Qlink Ltd repurchase? (iv)What are Qlink Ltd's market value balance sheet and share price after the share repurchase?5. Company A is currently an all-equity firm with 10 million shares outstanding at $80 per share. The cost of equity is currently 8.0%. Company A has decided to recapitalize the firm by issuing $200 million worth of debt, and using the proceeds to pay a special dividend to the firm's equity holders. The cost of debt is 5% and there are no taxes. A. After the recapitalization transaction is completed, what is the per share price of the company's stock? B. What is the company's cost of equity after the recapitalization?Wail Inc. is currently a firm that has 2 million shares of stock outstanding with a market price of $25 a share and outstanding debt of $30 million. The debt interest rate is 10%. Its cost of equity is 17 percent and the tax rate is 35 percent. For some reason related to one of the controlling shareholders' preference, the company wants to get rid of all its debt. After recapitalization, what is the value of the firm? $90,500,000 $50,000,000 $69,500,000 O $80,000,000 $30,000,000
- Hawar International is a shipping firm with a current share price of $4.94 and 9.8 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $8.7 million and repurchasing shares, that Hawar pays a corporate tax rate of 25%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will be the share price after this announcement? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? a. If the only imperfection is corporate taxes, what will be the share price after this announcement? The share price after this announcement will be $ per share. (Round to the nearest cent.) b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this…Hutchinson Corporation has zero debt - it is financed only with common equity. Its total assets are $400,000. The new CFO wants to employ enough debt to bring the debt/assets ratio to 40%, using the proceeds from the borrowing to buy back common stock at its book value. How much must the firm borrow to achieve the target debt ratio? Select the correct answer. a. $160,000.00 b. $160,011.80 c. $159,988.20 d. $159,964.60 e. $159,976.40Rian Corporation is currently working without using debt. The estimated operating profit per year is $16.065,180.00 while the equity capitalization rate (ke) is 18% pa. In the coming year, Rian is considering replacing some of his shares with a debt of $50 million, with an interest rate of 15% per annum. Question: a. Calculate the value of own capital capitalization (CS), the total capitalization value of the company (V), and the overall capitalization rate (ko) using the Net Income Approach. b. Calculate the amount of equity capitalized value, total capitalization value of the company, and overall capitalization rate using the traditional approach, if additional debt causes the equity capitalization rate (ke) to increase to 20%. c. Draw a graph of the two approaches.
- 1.Big Blue Banana (BBB) is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding. Suppose that Big Blue Banana announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares.Suppose that BBB pays corporate taxes of 21% and that shareholders expect the change in debt to be permanent. Assume that capital markets are perfect except for the existence of corporate taxes and financial distress costs. If the price of BBB's stock rises to $10.04 per share following the announcement, then the present value of BBB's financial distress costs is closest to: 2. If managed effectively, Rearden Metal will have assets with a market value of $200 million, $300 million, or $400 million next year, with each outcome being equally likely. Managers, however, may decide to engage in wasteful empire building, which will reduce Rearden's market value by $20 million in all cases. Managers may also increase the risk of…The Rogers Company is currently in this situation: (1) EBIT = $4.7 million; (2) tax rate, T = 40%; (3) value of debt, D = $2 million; (4) rd = 10%; (5) rs = 15%; (6) shares of stock outstanding, n = 600,000; and stock price, P = $30 Suppose the firm can increase its debt so that its capital structure has 50% debt, based on market values (it will issue debt and buy back stock). At this level of debt, its cost of equity rises to 18.5% and its interest rate on all debt will rise to 12% (it will have to call and refund the old debt). What is the WACC under this capital structure? What is the total value? How much debt will it issue, and what is the stock price after the repurchase? How many shares will remain outstanding after the repurchase?Give typing answer with explanation and conclusion The management of Tarantulagoodies is considering a reduction in the corporation’s debt ratio. The following information is available: Debt: $10,000,000, kd=7.5%, tax-rate=30% Common Stock: $23,000,000, b=1.2, RF=3.5%, E(RM)=10%. The issuance of $5,000,000 in common stock and repurchase of debt in that same amount is expected to result in the reduction in kd to7%. The impact of the action on the cost of equity is to be determined. Should management pursue the change in debt ratio? Why/why not?