Lily Co. is expected to pay a dividend of $12 at the end of this year. The firm would like to issue new common stock to raise project funds but expects to incur flotation costs of 4%. The company's dividends are expected to grow at a constant rate of 6% indefinitely. Currently the stock is selling for $120. What is the after-tax cost of this firm’s equity? Assume a tax rate of 40%.
Q: . If the tax rate is 25 percent, what is the value of the firm? (Do not round intermediate…
A: Firm Value: It represents the sum of all the creditor's claims & shareholders. It can be…
Q: The management of Final Designs, Inc., or FinD, has decided that the optimal capital structure for…
A: Since asked only for number 3, the only answer of only 3 will be provided
Q: You expect that Bean Enterprises will have earnings per share of $2 for the coming year· Bean plans…
A: EPS: It measures the company’s profitability. It shows the earnings of the company’s shareholders.
Q: The GIN Corp. is expected to pay a dividend of S3 which is expected to grow at 2% for a foreseeable…
A: WACC is the overall average cost of the all finance sources. It is equal to sum of product of cost…
Q: Calvert Corporation expects an EBIT of $25,500 every year forever. The company currently has no…
A: Given information, EBIT = $25,500 Cost of Equity = 15.4% Borrow rate = 10.2% Tax rate =21%
Q: The management of Final Designs, Inc., or FinD, has decided that the optimal capital structure for…
A: The cost of capital is the cost paid by the issuer to the investor or holder of the security. It…
Q: king Inc. is expected to generate EBIT of $5 million annually in perpetuity (starting in one year).…
A: After doing repurchase using the debt the number of shares decreases but cost of capital decreases…
Q: Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is…
A: There is no debt and no preferred stock in capital structure of company S. It means that the company…
Q: The management of Final Designs, Inc., or FinD, has decided that the optimal capital structure for…
A: The cost of debt which is known as a kd in the terms of finance is the cost of purchasing the debt…
Q: Wazir Ali Corporation expects next year’s net income to be $15 million. The firm’s debt ratio is…
A: Residual dividend policy is the policy in which the earnings of the company are first used for the…
Q: Rose Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9…
A: The Weighted Average Cost of Capital (WACC) is used mainly for the purpose of making long-term…
Q: Altamonte Telecommunications has a target capital structure that consists of 60% debt and 40%…
A: Given: Capital budgeting = $2,000,000 Net income = $1,300,000 Debt weight = 60% Equity weight = 40%
Q: Oregano Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…
A: A dividend is a payment made to shareholders by publicly traded firms, and it is derived from the…
Q: Kruger Associates is considering a substantial investment in the stock of McIntyre Enterprises.…
A: Year1 D1= D0(1+g) =1.5(1.15) =1.725 Year2 D2= D1(1+g) =1.725(1.15)= 1.9838 Year2 D3= D2(1+g)…
Q: Meyer & Co. expects its EBIT to be $115,000 every year forever. The firm can borrow at 7…
A: EBIT = $115,000Cost of Equity = 13% or 0.13Tax Rate = 24% or 0.24 Calculation of the Value of the…
Q: Blue Co., a company with 25% tax rate, has a free cash flow of P150,000,000 for the next year and is…
A: FCF1 = P 150,000,000 Growth rate (g) = 4% Debt to equity (D/E) = 0.25 Cost of debt = Rd = 5% Cost of…
Q: eavy Metal Corporation is expected to generate the following free cash flows over the next five…
A: Enterprise value will be the sum of present value all free cash flows and present value of terminal…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: EBIT= $60,000 Unlevered Cost of capital (Vu)= 12% Tax rate= 30% Debt value= $20,000 Annual coupon…
Q: You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans…
A: No Dividend for three years Cost of reinvestment =20% Earnings for fourth year =2(1.2)4=3.46 50% is…
Q: Salsa Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…
A: a) Earning per share = Yearly earnings / Number of shares = 75,000,000 / 12,000,000 = $ 6.25…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: Value of Unlevered firm (Vu)Vu=EBIT1-TRu where T= Tax rate, Ru=Unlevered cost of capital Value of…
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: As per MM proportion 2 value of unlevered firm will increase by present value of tax shield provided…
Q: Sambonoza Enterprises projects its sales next year to be $4 million and expects to earn 5 percent of…
A: The financing requirement is the total funds or capital required by the company.
Q: What will the WACC be after recapitalization?
A: WACC: It is the weighted average cost of capital of the corporation for raising various sources of…
Q: Bloom Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9…
A: EBIT = $100000 Cost of debt (Rd) = 9% Cost of equity (Re) = 18% Tax rate (T) = 35% Debt amount =…
Q: Sidman Products's common stock currently sells for $49 a share. The firm is expected to earn $4.41…
A: Given; Current market price = $49 Expected earnings per share = $4.41 Year end dividend = $2.80
Q: Leni Inc. is an all-equity firm. At the end of the current year, the CFO expects EBIT to be $10M,…
A: Market value: = Total number of shares × Market price per share
Q: Milton Inc. is an all-equity firm and investors expect it to remain an all-equity firm in the…
A: Free Cash Flows(FCF) refers to net cash available to common stockholders of an entity that is used…
Q: a) Calculate the price per share of Mitsui Ltd immediately before the repurchase announcement. b)…
A: Share price is the price at which share can be purchased from the stock market. Shareholders try to…
Q: Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year…
A: Dividend Discount model is used to calculate this. Dividend for Year 1,2 and 3 is calculated along…
Q: In year 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to…
A: Free cash flow to equity (FCFE): It is the fund generated by business available to be potentially…
Q: Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year…
A: Discounted dividend model is used to calculate the fair value of the stock. Dividend for Year 1,2…
Q: Linkcomn expects an Eamnings after Taxes of 7500005 every year. The firm currently has 100% Equity…
A: Earnings after tax(EAT) = 7500005 Cost if Equity (ke) = 12% Value of a firm is the present value of…
Q: Scampini Technologies is expected to generate $50 million in free cash flow next year, and FCF is…
A: The share price is the current market price of the share. It is the price of the share at any…
Q: Pimento Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares…
A: Given: Earnings = $75 million Shares outstanding = 12 Million Price = $27.50
Q: New Schools is an all-equity company with an expected EBIT of $94,000 every year forever. The…
A: Value of Unlevered firm = EBIT(1 – tax rate)/cost of equity Value of Unlevered firm = $94,000(1 –…
Q: You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans…
A: Dividend per share refers to the amount of the net income which is paid to the equity shareholders.…
Q: Allison Engines Corporation has established a target capital structure of 40 % debt and 60% common…
A: Ke = D1/ P + g Where Ke = cost of equity D1 = latest dividend P = price after floatation cost g =…
Q: Southern Timber Company expects to have an EBIT of $10 million in the coming year, and its EBIT is…
A: According to M&M Model the value of levered firm will be sum of value of unlevered firm plus tax…
Q: The Wei Corporation expects next year's net income to be $10 million. The firm is currently financed…
A: In residual distribution model, we distribute dividend from net income after retaining funds for…
Q: Sims Manufacturing is expected to generate $180 million in free cash flow next year, and FCF is…
A: Calculation of stock’s value per share: Answer: Stock value per share is $5.14
Q: The management of Final Designs, Inc., or FinD, has decided that the optimal capital structure for…
A: The Weighted average cost of capital is the cost of each capital consider with their weights. The…
Q: The management of Final Designs, Inc., or FinD, has decided that the optimal capital structure for…
A:
Q: Pack-and-Send, Inc. expects to have free cash flow of $6.5 million next year and this cash flow will…
A: Financial ratios establish the relationship between two financial items from an income statement or…
Q: Widgets Inc has an expected EBIT of $64,000 in perpetuity and a tax rate of 35 percent. The firm has…
A: The question is based on assumptions of MM proposition I with taxes, the value of firm may increase…
Q: Wichita Realty Trust is expected to pay a modest dividend of $1.00/share for two years and then…
A: Given information: Rate of return is 10% Dividend for first two years is $1.00 Dividend for next…
Lily Co. is expected to pay a dividend of $12 at the end of this year. The firm would like to issue new common stock to raise project funds but expects to incur flotation costs of 4%. The company's dividends are expected to grow at a constant rate of 6% indefinitely. Currently the stock is selling for $120. What is the after-tax cost of this firm’s equity? Assume a tax rate of 40%.
Step by step
Solved in 3 steps
- Ogier Incorporated currently has $800 million in sales, which are projected to grow by 10% in Year 1 and by 5% in Year 2. Its operating profitability ratio (OP) is 10%, and its capital requirement ratio (CR) is 80%? What are the projected sales in Years 1 and 2? What are the projected amounts of net operating profit after taxes (NOPAT) for Years 1 and 2? What are the projected amounts of total net operating capital (OpCap) for Years 1 and 2? What is the projected FCF for Year 2?H. J. Corp.'s common just paid a dividend of $5 for the year. Dividends are expected to grow at a 4% annual rate forever. If H. J.'s current market price is $60, what is the after-tax cost of this firm’s equity? Assume a tax rate of 40%.RDJ Corp. has expected earnings before interest and taxes (EBIT) of $5,000 (assumed to continue forever). Its unlevered cost of capital is 13.0% and its corporate tax rate is 35%. The company would like to borrow debt that amounts to $2,000 and use the proceeds to buy back shares. This debt has a 7.0% annual interest rate and pays interests annually. What is the firm's cost of equity, after this capital conversion? O A. O B. O C. O E. 10.05% 13.33% 15.14% OD. 13.82% 12.65% B 10 19 28 37 46 Finis
- Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde’s tax rate is 25%. Year 1 Year 2 Year 3 Interest Expenses $80 $100 $120 a. What is the horizon value of the interest tax shield? b. What is the total value of the interest tax shield at Year 0?Wilde Software Development has an 11% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 3% rate after Year 3. Wilde's tax rate is 25%. Year 1 Year 2 Year 3 Interest expenses $85 $100 $125 What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the total value of the interest tax shield at Year O? Do not round intermediate calculations. Round your answer to the nearest cent. $Munich Re Inc. is expected to pay a dividend of $4.82 in one year, which is expected to grow by 4% a year forever. The stock currently sells for $72 a share. The before-tax cost of debt is 6% and the tax rate is 34%. The target capital structure consists of 30% debt and 70% equity. What is the company's weighted average cost of capital?
- Wilde Software Development has an 11% unlevered cost of equity. Wwilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde's tax rate is 25%. Year 1 Year 2 Year 3 Interest expenses $75 $110 $130 a. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent. b. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent. $DFB, Inc. expects earnings next year of $5.00 per share, and it plans to pay a $3.00 dividend to shareholders (assume that is one year from now). DFB will retain $2.00 per share of its earnings to reinvest in new projects that have an expected return of 15.0% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.0%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $4.00 per share at the end of this year and retained only $1.00 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…Costly Corporation is considering using equity financing. Currently, the firm's stock is selling for $31.00 per share. The firm's dividend (D0) is $3.00 with constant annual growth rate of 5.0%. If the firm issues new stock, the flotation costs would equal 10.0 percent of the stock's market value. The firm's marginal tax rate is 40%. What is the firm's cost of external equity?
- DFB, Inc. expects earnings next year of $5.99 per share, and it plans to pay a $4.36 dividend to shareholders (assume that is one year from now). DFB will retain $1.63 per share of its earnings to reinvest in new projects that have an expected return of 14.8% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 12.6%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $5.36 per share at the end of this year and retained only $0.63 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…DFB, Inc. expects earnings next year of $5.87 per share, and it plans to pay a $3.39 dividend to shareholders (assume that is one year from now). DFB will retain $2.48 per share of its earnings to reinvest in new projects that have an expected return of 15.5% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 11.9%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $4.39 per share at the end of this year and retained only $1.48 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesting in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…DFB, Inc. expects earnings next year of $4.48 per share, and it plans to pay a $2.54 dividend to shareholders (assume that is one year from now). DFB will retain $1.94 per share of its earnings to reinvest in new projects that have an expected return of 15.7% per year. Suppose DFB will maintain the same dividend payout rate, retention rate, and return on new investments in the future and will not change its number of outstanding shares. Assume next dividend is due in one year. a. What growth rate of earnings would you forecast for DFB? b. If DFB's equity cost of capital is 11.8%, what price would you estimate for DFB stock today? c. Suppose instead that DFB paid a dividend of $3.54 per share at the end of this year and retained only $0.94 per share in earnings. That is, it chose to pay a higher dividend instead of reinvesti in as many new projects. If DFB maintains this higher payout rate in the future, what stock price would you estimate for the firm now? Should DFB raise its…
