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Green Manufacturing, Inc., plans to announce that it will issue $2.01 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. Green is currently an all-equity firm worth $6.48 million with 410,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $1.51 million. This level of earnings is expected to remain constant in perpetuity. Green is subject to a corporate tax rate of 30 percent. a. What is the expected return on Green’s equity before the announcement of the debt issue? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Expected return 16.31 % b. What is the price per share of the firm’s equity? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Price per share $ 15.80 d. What is Green’s stock price per share immediately after the repurchase announcement? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New share price $ e-1. How many shares will Green repurchase as a result of the debt issue? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Shares repurchased e-2. How many shares of common stock will remain after the repurchase? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) New shares outstanding g. What is the required return on Green’s equity after the restructuring? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Required return %
Drongo Corporation's 4-year bonds currently yield 7.4 percent. The real risk-free rate of interest, r*, is 2.7 percent and is assumed to be constant. The maturity risk premium (MRP) is estimated to be 0.1%(t - 1), where t is equal to the time to matu..
If Southwick reduces their inventory by $500,000 through more efficient inventory management and invests the proceeds in marketable securities what happens to the Current, quick and debt to equity ratio?
The risk-free rate of return is 8%, the required rate of return on the market is 13%, and High-Flyer stock has a beta coefficient of 2.4. If the dividend per share expected during the coming year, D1, is $4.50 and g = 6%, at what price should a share..
Assume a local Cost Cutters provides cuts, perms, and hairstyling services. Annual fixed costs are $105,000, and variable costs are 40 percent of sales revenue. Last year's revenues totaled $225,000. Determine its break-even point in sales dollars. D..
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A local finance company quotes an interest rate of 19.5 percent on one-year loans. So, if you borrow $46,000, the interest for the year will be $8,970. Because you must repay a total of $54,970 in one year, the finance company requires you to pay $54..
The key to the future behavior of a company lies in the sales growth and the net profit margin. A company's estimated future earnings and its P/E ratio can be used to estimate the stock's future price. A temporary decline in earnings per share usuall..
You have written a put option on XYZ Corporation common stock. The option has an exercise price of $22.3 and an option premium of $1.94 per share. What is your payoff per contract is the stock price is $40 at expiration?
Ultimate Butter Popcorn issues 3%, 7-year bonds with a face amount of $50,000. The market interest rate for bonds of similar risk and maturity is 2%. Interest is paid semiannually. At what price will the bonds issue?
Rentz RVs Inc. (RRV) is presently enjoying relatively high growth because of a surge in the demand for recreational vehicles. Management expects earnings and dividends to grow at a rate of 30% for the next 4 years, after which high gas prices will pr..
You are using your comparable company set to value Jimmy Jones & Co. The average EBITDA multiple of the comps is 7.0x Jimmy Jones' EBITDA is 200M, and their net debt is 50M. What is Jimmy Jones' impaled equity value? Which of the following is NOT an ..
Given the information in question 1, do you expect that Key West Co. is more concerned about the adverse effects of political risk or of financial risk? Explain how a terrorist attack might affect an MNC.
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