Reference no: EM131027710
Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40 percent debt. Currently, there are 2,000 shares outstanding and the price per share is $70. EBIT is expected to remain at $16,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes.
a. Ms. Knowles, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
b. What will Ms. Knowles' cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.
c. Suppose Star does convert, but Ms. Knowles prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital structure.
d. Using your answer to part (c), explain why Star's choice of capital structure is irrelevant.
|
Identify a topic related to islamic civilization
: Identify a topic related to Islamic Civilization that you would like to explore in greater detail. This is your chance to build on your general knowledge of Islamic Civilization and complete an applied project on an issue of personal, professiona..
|
|
Percentage changes in roe for economic expansion
: Calculate return on equity, ROE, under each of the three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming no taxes.
|
|
Use the binomial distribution under these conditions
: Now suppose 3 of his customers want the same ring, and they will go to another store if its already been sold. Would it be appropriate to use the binomial distribution under these conditions? Why or why not?
|
|
Do you think sexuality research is less quirky
: Which cases discussed by Roach seemed most interesting to you? Why? Do you think sexuality research is less quirky now than in the past? How have social values influenced sexually research, both in the present and the past
|
|
Cash flow under the current capital structure
: Ms. Knowles, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
|
|
Paying performance bonuses-what are the pros and cons
: What is a good opinion about Wooga's company’s view of not paying performance bonuses? What are the pros and cons?
|
|
Show that this is an equivalence relation on x
: Denote the equivalence class of (a; b) by a=b and the set of equivalence classes by RS (called thelocalization of R at S). Show that RS is a commutative ring with 1.
|
|
Anything to prevent groupthink among its development teams
: To what extent are Wooga’s teams subject to group-think? Does the company do anything to prevent groupthink among its development teams? In book Management A Practical Introduction seventh edition
|
|
Diamond framework for national competitiveness
: Using Porter's diamond framework for national competitiveness, discuss the success of the software industry in India. How do the four factors in Porter's diamond explain the success of this industry over related industries in the country? During the ..
|