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Bynum Tools has no debt in its current financial structure. The firm expects perpetual annual before-tax cash flows of $45 million and has a marginal corporate tax rate of 30 percent. There are currently 2 million shares of stock outstanding with a required return on equity of 12 percent. Bynum is currently planning a recapitalization under which it will issue $100 million of perpetual debt having an interest rate of 5 percent. The proceeds of the debt issue will be used to repurchase stock. Determine,
(a) the post-recapitalization share price,
(b) the post-recapitalization earnings per share,
(c) the required return on equity,
(d) the weighted average cost of capital,
(e) the remaining number of shares outstanding following the recapitalization.
Howard gives his money manager 100,000 at the beginning of the year. in 6 months the account is worth 105,000 and Howard immediately gives the manager an additional 95,000. At the end of the year, the account is worth 220,000. What is the time-weight..
A firm has a return on equity of 15%. The debt-equity ratio is 50%. The total asset turnover is 1.25 and the profit margin is 8%. The total equity is $3,200. What is the amount of the net income?
Freddy Co. expects to pay a dividend of $1.82 per share next year. Calculate the price per share.
At an output level of 62,000 units, you calculate that the degree of operating leverage is 3.70. Suppose fixed costs are $280,000. What is the operating cash flow at 56,000 units? What is the new degree of operating leverage?
Calculate the After-Tax Cash Flow, NPV (at minimum ROR=20%) and ROR for the following investment: The investor is a Non-integrated petroleum company. Total producible oil in the reserve is estimated to be 2,400,000 barrel. Equipment depreciation will..
An economic downturn causes 5 percent of the local businesses to declare bankruptcy and default on their loans.
What is the lower boundary for the value of a European vanilla put option on this asset with strike price of $80?
Paul wants to purchase 250 shares of Haliburton for $40 per share but borrows 50% on “margin” to finance part of the transaction.
Which of the following variables will be forecast at their highest expected level under a worst case scenario?
Stackhouse Industries has a new project available that requires an initial investment of $5.9 million. The project will provide unlevered cash flows of $815,000 per year for the next 20 years. The company will finance the project with a debt-to-value..
Do you believe a firm in a weak financial condition could most easily obtain financing through a bank loan or financing through a lease?
To calculate the price of the bond when it was originally issued, you will use the function PV. By using the function PV calculate the price of the bond when it was originally issued.
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