What is the current price per share of first pacific company

Assignment Help Financial Management

Reference no: EM131511721

First Pacific Company is an all-equity firm with earnings expected to be $900,000 annually in perpetuity. The firm has 200,000 shares outstanding. The weighted average cost of capital (WACC) is 12%. First Pacific Company is considering a major expansion of facilities. This expansion will require an initial outlay of $800,000, which is expected to produce additional annual earnings of $300,000 per year in perpetuity. The management of First Pacific Company considers the expansion to have the same risk as the firm’s existing assets (Hints: No taxes and no costs of bankruptcy.)

a. What is the current price per share of First Pacific Company?

b. Assume First Pacific Company plans to finance the expansion by issuing common stock. How many shares must be issued? In this case, what is the price per share of the stocks?

c. If First Pacific Company plans to finance the expansion by issuing bonds with an interest rate of 11%, what will be the the firm’s value after the bond issue? Under this scenario, what will be the price per share?

d. After paying interest for the equity holders, what will be the expected yearly income? Use the expected yearly income and measure the expected return for the equity holders.

e. Use M&M Proposition II (no taxes) to determine the expected return for the equity holders.

Reference no: EM131511721

Questions Cloud

Common stock valuation : what is the value of the common stock if the investors require a rate of return of 19%?

Whole life or universal life insurance : After graduation you will be hounded by insurance agents interested in selling you "whole life" or "universal life" insurance.

Evaluate generation project with the cash flows : Howell Petroleum, Inc., is trying to evaluate a generation project with the cash flows. what is the NPV of the project? Compute the IRRs for this project.

Calculate both the payback period and simple rate of return : Calculate both the Payback Period, and the Simple Rate of Return for this proposed investment,

What is the current price per share of first pacific company : First Pacific Company is all-equity firm with earnings expected to be $900,000 annually in perpetuity. What is current price per share of First Pacific company.

What was an important reason for the big currency backfire : Why do foreign consumers purchase fewer U.S. products when the U.S. dollar strengthens? What was an important reason for the "Big Currency Backfire"?

Calculate the mean-variance and standard deviation : Calculate the mean, variance, and standard deviation (Show your work)

Including the amount paid for the option premium : Determine the amount of dollars it will pay for the payables, including the amount paid for the option premium.

What will be the gain or loss on the collar : What will be the gain or loss on the collar if the stock price increases by $1?

User Account

All Pages