Reference no: EM132022640
Newkirk, Inc., is an unlevered firm with expected annual earnings before taxes of $23 million in perpetuity. The current required return on the firm’s equity is 16 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.5 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 $32 million of perpetual 11 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 $
|
Install the machine press
: Yasmin Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $614,400 is estimated to result
|
|
What is project net present value
: The cost of capital is 8 percent. What is the project’s net present value if the tax rate is 38 percent?
|
|
Considering a new year expansion project
: Down Under Boomerang, Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $1,134,000.
|
|
How do you respond to your boss request
: In a highly controversial move, your favorite social network has just agreed to allow Walmart access to the postings, messages, and photos of its users.
|
|
The recapitalization plan is announced
: Calculate the value of the company before the recapitalization plan is announced. What is the price per share after the recapitalization is announced?
|
|
Does the premise of those articles support the overall theme
: Discuss what you learned from those articles. In your discussion, give example(s) of your organization handles ethic concerns.
|
|
What will be suzanne annual pension benefit from bce
: What will be Suzanne's annual pension benefit from BCE?
|
|
Discuss the vpn connectivity troubleshooting process
: Using the troubleshooting information provided in the handout, identify relevant steps in the VPN connectivity troubleshooting process.
|
|
Average annual compound rate of interest
: What was the average annual compound rate of interest on Bobby's loan from his father?
|