User Account

All Pages

How many shares will green repurchase?

Assignment Help Finance Basics
Reference no: EM13888813

Read each question carefully and show all of your work clearly on the short-answer problems as partial credit will be given.

1. Buckeye Corp. is currently an all-equity firm with a market value of equity of $100 million. The current expected return on Buckeye's equity is 25%. Buckeye operates in a world with no taxes. Buckeye is planning on issuing $10 million in debt with an interest rate of 10% and using the cash to repurchase $10 million in shares. There are no corporate or personal taxes.

(a) After Buckeye repurchases the stock, what will be the expected return on the firm's stock?

(b) After Buckeye repurchases the stock, what will be the firm's weighted average cost of capital?


2. Green Manufacturing is an all equity firm with a current market value of $20,000,000 and 500,000 shares outstanding. The current expected return on the firm's stock is 20%. Green plans to announce that it will issue $2,000,000 of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6% interest rate. After the sale of the bonds and the share repurchase, Green will maintain the new capital structure indefinitely. The corporate tax rate for
Green is 30% and there are no personal taxes. (12 points)

(a) What will the stock price be immediately after Green announces its plan to issue bonds and repurchase equity?

(b) What will the total market value of the firm's equity be immediately after Green announces its plan to issue bonds and repurchase equity?

(c) How many shares will Green repurchase?

(d) What will be the market value of Green's equity after the bond issue and share repurchase are completed?

(e) What was Green's weighted average cost of capital before the change in capital structure?

(f) What is Green's weighted average cost of capital after the change in capital structure?

Reference no: EM13888813

Questions Cloud

Marketing actions differ for each product : Based on your answer to question 2, how would the marketing actions differ for each product and the classification to which you assigned it?
Which project maximizes the value of the firm? : Which project maximizes the value of the firm?
Compute total variable cost and total fixed cost per unit : Compute the total variable cost per unit, total fixed cost per unit, and total cost per unit for R2-D2. Compute the desired ROI per unit for R2-D2.
Services apply to a marriott hotel : 1.Explain how the four Is of services apply to a Marriott Hotel.
How many shares will green repurchase? : How many shares will Green repurchase?
Idle production capacity may be related to inventory : 1.Idle production capacity may be related to inventory or capacity management.
Pc manufacturers to increase their sales in the market : 1.In terms of the behavioral effect on consumers, how would a PC, such as an Apple iMac, be classified?
What is the duration of this set of payments : A pension fund must pay out $2 million in one year, $5 million the following year, and then $4 million the year after that. If the discount rate is 6%, what is the duration of this set of payments?
Which type of dwellings will he choose to build : If the construction manager were an optimist, what criterion would he choose? What would be the choice of dwelling for that criterion? Show your supporting calculations.

Reviews

Write a Review

Finance Basics Questions & Answers

  What are the companys most vulnerable areas

What are the companys most vulnerable areas

  Today many companies face budgetary challenges on a

today many companies face budgetary challenges on a continual basis. two critical aspects that businesses lack are

  A project produces a cash flow of 432 in year 1 137 in

a project produces a cash flow of 432 in year 1 137 in year 2 and 797 in year 3. if the cost of capital is 15 what is

  What lessons were learned from the financial crisis

What Lessons were learned from the Financial Crisis - Should GE continue to increase its dividend or pursue non financial acquisitions and was the financial crisis a "blessing in disguise" for GE?1-Computing Liquidity Ratios

  Ater year 2 fcf is expected to grow at a constant rate of

kedia inc. forecasts a negative free cash flow for the coming year fcf1 -10 million but it expects positive numbers

  Demonstrate thoughtful consideration of the ideas

Support your paper with a minimum of three (3) resources, which may include your required text. In addition to these specified resources, other appropriate scholarly resources, including older articles, may be included.

  At january 1 2012 there was a credit balance of 900 in the

at december 31 2012 the fair value of available for- sale securities is 41300 and the cost is 39800. at january 1 2012

  Standard deviations are given in the options given below

assume that the expected returns of the portfolios are the same but their standard deviations are given in the options

  What should the exchange rate be four years from now

Currently, you can exchange $100 for €97.25. The inflation rate in Euroland is expected to be 3.8 percent as compared to 2.1 percent in the U.S. Assuming that relative purchasing power parity exists, what should the exchange rate be four years fro..

  Decision making gone awry

Sometimes social influences and societal pressures can influence decision making for the better and sometimes for the worse. In addition to these pressures, there are risks that need to be evaluated and measured when making decisions. In this assi..

  Compute each of the following ratios for both jds and mls

westfield capital management co.s equity investment strategy is to invest in companies with low price-to-book ratios

  Capers inc is also initiating an inventory management

part one working capital analysiscapers inc. has just promoted you to chief financial officer. since this is a new

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd