Proceeds to buy back shares of company common stock

Assignment Help Financial Management

Reference no: EM13953751

Ridgefield Enterprises has total assets of $300 million and EBIT of $45 million. The company currently has no debt in its capital structure. The company is contemplating a recapitalization where it will issue debt at 10 percent and use the proceeds to buy back shares of the company's common stock. If the company proceeds with the recapitalization, its operating income, total assets, and tax rate will remain the same. Which of the following will occur as a result of the recapitalization?

A. The company's ROA and ROE will increase

B. The company's ROA and ROE will decrease.

C. The company's ROA will decrease and ROE will increase

D. The company's ROA will increase and ROE will decrease

E. Can't tell without knowing more information.

Reference no: EM13953751

Questions Cloud

The equipment that would be used has three year tax life : DiCapri Company is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated straight-line method over its 3-year life, and would have a zero salvage value. No new working capit..

Return on capital and reinvestment rates : You have been asked to estimate the value of General Communications, a telecomm firm. General Communications has a debt to capital ratio of 30%, a beta of 1.10 and a pre-tax cost of debt of 7.5%. Assuming that the firm is in stable growth, and that ..

Fully depreciated on a straight-line basis : Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $276,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..

Shares of stock outstanding-what is the price-earnings ratio : Mining Materials, Inc. has a market-to-book ratio of 1.6, net income of $180,000, a book value per share of $52.50, and 120,000 shares of stock outstanding. What is the price-earnings ratio?

Proceeds to buy back shares of company common stock : Ridgefield Enterprises has total assets of $300 million and EBIT of $45 million. The company currently has no debt in its capital structure. The company is contemplating a recapitalization where it will issue debt at 10 percent and use the proceeds t..

Equipment will be depreciated straight-line to zero : The Blue Moon is considering a 4-year project that requires an investment of $2.8 million for new equipment. This equipment will be depreciated straight-line to zero over the life of the project and will be worthless thereafter. Management uses the s..

What day does the stock begin trading ex dividend : Dividend Payment: Kathy Snow wishes to purchase shares of Countdown Computers, Inc. The company’s Board of Directors has declared a cash dividend of $0.80 tobe paid to holders of record on Wednesday, May 12. What is the last day that Kathy can purcha..

What are the common stockholders residual claims to earnings : Wrecks Inc. has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred stockholders. a. What are the common stockholders’ residual claims to earnings? b. What are the common stockholders’ l..

Arguments based on recent events in the financial markets : Explain in your own words if you believe that the Glass-Steagall Act should be brought back. You do not have to take a position and can give the pros and cons of doing so. If you do take a position explain how the pros or cons weigh against each othe..

User Account

All Pages