How much cash must be provided from operations

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Question - a) Caesar Co. currently has 30 000 shares outstanding. Each share has a market value of $20. If the firm pays $5 per share in dividends, what will the value of each share be worth after the dividend payment? Ignore taxes.

b) Beta Co. plans to raise $10 000 in new equity this year and wants to pay a dividend to shareholders of $30 000 in total. The firm must pay $20 000 interest during the year and will also pay down principal on its debt obligations by $10 000. If the firm continues with its capital budgeting plan, it will require $100 000 for capital expenditures during the year. Given the above information, how much cash must be provided from operations for the firm to meet its plan?

c) Alfa Co. is currently financed with 50 per cent debt and 50 per cent equity. The firm pays $125 each year to its debt investors (at a 10 per cent cost of debt) and the debt has no maturity date. What will be the value of the equity if the firm repurchases all of its debt and raises the funds by issuing equity? Assume that all of the assumptions in Modiglianiand Miller's Proposition 1 hold.

Reference no: EM133071035

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