The common stock and debt of the listed French clothing company Fille Provocatrice are valued at EUR500 million and EUR300 million respectively. Shareholders currently require a 9% return and the cost of debt is 3%. Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. If Fille Provocatrice issues an additional USD 100 million of debt and uses this money to buy back shares, what happens to the cost of equity of the stock? The new cost of equity of the stock comes closest to 9.0% 9.5% 10.0% 10.5% D 11.0%
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- ABC SA. is financed solely by equity. Currently, the company has 20 million sharesoutstanding. These shares are listed in Euronext at 10€/share. The executive management teamannounced the aim of issuing 40 million euros in debt and using the proceeds to buy own shares(a share buyback program).a) What consequences on the market price do you anticipate, because of this announcement(provide the corresponding rationale for your answer)?b) How many shares can the company buy back with the proceeds from the debt issue?c) Following the change in financial structure, what will be the company’s market value (equityplus debt)?d) What level will the debt ratio reach after the change in financial structure?e) With this change in financial structure, is the cost of equity expected to increase, decrease,or stay at the same level? Justify.The common stock and debt of Northern Sludge are valued at $65 million and $35 million, respectively. Investors currently require a 15.9% return on the common stock and a/an 7.8% return on the debt. If Northern Sludge issues an additional $14 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.)The common stock and debt of Northern Sludge are valued at $62 million and $38 million, respectively. Investors currently require a 16.8% return on the common stock and a/an 7.2% return on the debt. If Northern Sludge issues an additional $21 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.) What is the new return on equity? ____%
- The common stock and debt of Northern Sludge are valued at $80 million and $20 million, respectively. Investors currently require a 16.2% return on the common stock and a/an 7.5% return on the debt. If Northern Sludge issues an additional $11 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.) The common stock and debt of Northern Sludge are valued at $80 million and $20 million, respectively. Investors currently require a 16.2% return on the common stock and a/an 7.5% return on the debt. If Northern Sludge issues an additional $11 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect…The common stock and debt of Northern Sludge are valued at $72 million and $12 million, respectively. Investors currently require a 16.4% return on the common stock and/an 7.3% return on the debt. If Northern Sludge issues an additional $12 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern's debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.)The common stock and debt of Northern Sludge are valued at $70 million and $30 million, respectively. Investors currently require a 16.0% return on the common stock and a/an 7.7% return on the debt. If Northern Sludge issues an additional $13 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and that there are no taxes. a. What is the new return on equity?
- If iOS Corp. issues an additional $8 million of debt and uses this money to retire common stock, what will be the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt, and recall that the WACC under the initial capital structure is 13.85%. Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your answer rounded to 2 DECIMAL PLACES. TE= Number Click "Verify" to proceed to the next part of the question.The common stock and debt of Northern Sludge are valued at $66 million and $34 million, respectively. Investors currently require a return of 15.6% on the common stock and 8.1% on the debt. If Northern Sludge issues an additional $17 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes (do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places).BTC has 15M shares in an all-equity firm, at a price of $13 per share. The firm announced that they will borrow $100M to buy back shares (using the full amount of debt). They will keep this debt permanently. Upon announcement the share price increases to $16 per share. The corporate tax rate is 25%, taxes and financial distress costs are the only relevant market imperfections. What is the present value of the financial distress costs?
- You own all the equity of R.G.C. I Ltd. The company has no debt. The company's annual cash flow is GH¢900,000 before interest and taxes. The company tax rate is 30%. You have the option to exchange 1/2 of your equity position for 5% bonds with a face value of GH¢2,000,000. i. What is the value of the unlevered firm? ii. What is the value of the levered firm? iii. Assuming a bankruptey cost of GH¢8000, what is the value of the levered firm after considering bankruptcy cost?The common stock and debt of Northern Sludge are valued at $56 million and $23 million, respectively. Investors currently require a 15% return on the common stock and an 7% return on the debt. If Northern Sludge Issues an additional $5 million of common stock and uses this money to retire debt, what is the new expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Expected stock return %Hawar International is a shipping firm with a current share price of $5.05 and 10.4 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $9.5 million and repurchasing shares, that Hawar pays a corporate tax rate of 21%, 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 $5.10 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt?