Calculate value of the company before the recapitalization

Assignment Help Finance Basics

Reference no: EM133331538

Questions:

Newkirk Inc has expected annual earnings before interest and taxes of $230 million in perpetuity. The current reported return on the firm's equity is 16% and the average interest rate on its debt obligations is 9.5%. The firm's last balance sheet statement reported total debt obligations of $642 million and total equity of $856 million. The firm has been paying 25% of its net income as dividends each year. Newkirk Inc. is subject to a corporate tax rate of 20%. The firm is planning to recapitalize by raising additional $200 million of debt at the same interest rate of 9.5% and using all the proceeds to buy back shares. Further, the company is planning to increase its dividend payout ratio from 25% to 100% five years from now.

Calculate the value of the company before the recapitalization is announced using FCF method.
Calculate the value of the company after the recapitalization is announced using APV method.
Calculate the value of the company after the recapitalization is announced using ECF (equityholder cash flow) method.
Calculate the value of the company after the recapitalization is announced using dividend discount model.

Reference no: EM133331538

Questions Cloud

Evaluate an offer received to purchase a company : What are two most important concepts to remember when using valuation methods to make investment decisions or to evaluate an offer received to purchase

Describe the various methods used in financial planning : Describe the various methods used in financial planning for later years. Upon completion of this discussion, student will demonstrate their understanding

What is the npv of the project : What is the NPV of the project? A firm is evaluating a four-year project that requires an investment today of $2.4 million.

How should an airport prepare to handle uas operators : What are the dangers to aircraft and airport operations from UAV operations? How should an airport prepare to handle UAS operators?

Calculate value of the company before the recapitalization : Calculate the value of the company before the recapitalization is announced using FCF method. Calculate the value of the company after the recapitalization

Discuss an example of a specific industrial cluster : Consider an example of a specific industrial cluster, explain how we can enhance the performance of this cluster in order to export more?

What is the equity in the position : The short interest is 50.50%. If the price of MRNA goes to $69.19 one year after, what is the equity in the position (at the end of the first year)?

What is the value of the assets : What is the value of the assets? (Hint: value of something is PV of ECF at 000) What is the value of the ?rln's debt? Write down the ?rm's balance sheet.

Describe customer requirements : Describes in detail customer requirements, preliminary specifications, and related technology areas competitive benchmarks.

User Account

All Pages