Reference no: EM133111125
1. Mitra Corporation is currently all equity financed and has a value of $60 million. Investors currently require a return of 15.2 percent on common stock. Mitra has a marginal tax rate of 20 percent. Mitra plans to issue $10 million of debt with a return of 4.5 percent and use the proceeds to repurchase common stock.
Given that the value of the firm after the debt issue will be $62 million, what will be the value of the equity after the debt issue? Please state your answer in millions rounded to two decimal places.
Enter your response below.
million
2. Rozanski Co. currently has EBIT of $47,000 and is all equity financed. EBIT are expected to grow at a rate of 4% per year. The firm pays corporate taxes equal to 39% of taxable income. The cost of equity for this firm is 19%.
Suppose the firm has a value of $191,133.33 when it is all equity financed. Now assume the firm issues $70,000 of debt paying interest of 10% per year and uses the proceeds to retire equity. The debt is expected to be permanent.
What will be the value of the firm? Enter your answer rounded to two decimal places.
What will be the value of the equity after the debt issue? Enter your answer rounded to two decimal places.
3. Yellow Corp. is evaluating an extra dividend versus a share repurchase. In either case, $4,500 would be spent. Current earnings are $0.96 per share and the stock currently sells for $43 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections.
After the $2.25 dividend, the price falls to $40.75 per share. What are earnings per share (EPS) and the price earnings (P/E) ratio? Enter your answers rounded to 2 DECIMAL PLACES.
EPS=
P/E Ratio =
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: 1. Mitra Corporation is currently all equity financed and has a value of $60 million. Investors currently require a return of 15.2 percent on common stock. Mi
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