Reference no: EM132017804
Question: Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $22 million in perpetuity. The current required return on the firm's equity is 20 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.4 million shares of common stock outstanding and is subject to a corporate tax rate of 35 percent. The firm is planning a recapitalization under which it will issue $31 million of perpetual 10 percent debt and use the proceeds to buy back shares.
a-1. Calculate the value of the company before the recapitalization plan is announced. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Current value $
a-2. What is the price per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price per share $
b-1. Use the APV method to calculate the company value after the recapitalization plan is announced. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Value after recapitalization $
b-2. What is the price per share after the recapitalization is announced? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price per share $
c-1. How many shares will be repurchased? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Shares repurchased $
c-2.What is the price per share after the recapitalization and repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price per share $
d. Use the flow to equity method to calculate the value of the company's equity after the recapitalization. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
Value of the equity $
Compute the dividend for the current year
: The stock is currently selling at $47.25, and the required rate of return is 15.0 percent. Compute the dividend for the current year (D0)
|
What is the interest rate you would pay by financing
: New of sails the pirate fleet sells for $75,000. The manufacturer offers financing at 8% with annual payments for 4-years for up to $50,000 of the cost.
|
Determine the cost of each job
: The Lynn job is the only incomplete job at the end of November. Actual overhead for the month was $14,030. Determine the cost of each job
|
What is expected return-beta relationship in this economy
: Suppose that there are two independent economic factors, F1 and F2. What is the expected return-beta relationship in this economy?
|
Find price per share after the recapitalization is announced
: What is the price per share after the recapitalization is announced? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g.)
|
What is the firm weighted average cost of capital
: What is the firm’s weighted average cost of capital (WACC2) if it has to issue new common stock?
|
What is the total dividend paid to preferred stockholders
: The board of directors voted to distribute $40,000 as dividends in 2013, $55,000 in 2014, and $65,000 in 2012. What is total dividend paid to preferred stock
|
Compute amount paid on each share of preferred stock
: The Northwest Corporation has outstanding 20,000 shares of 12 percent, $50 par-value, Compute Amount paid on each share of preferred stock in 2014
|
Research sarbanes-oxley
: Research Sarbanes-Oxley. How has it changed the responsibility of people involved in companies whose stock is publicly traded?
|