User Account

All Pages

What is the price-to-earnings ratio of the combined firm

Assignment Help Financial Accounting
Reference no: EM132971191

Question - Elbur considers acquiring Spoof Inc., a company with 1,000 shares outstanding trading at $40 per share and $25,000 worth of risk free perpetual debt. Spoof Inc. does not make any investments and thus does not grow. Elbur contemplates the following deal. It will buy Spoof Inc. for $75,000 (you have to buy out both equity and debt) all financed by a perpetual risk free debt. The tax rate of the combined firm will be 35%.

(i) Unfortunately, Elbur's CFO does not know Spoof's tax rate. However, while reading Spoof's 10-K, she finds out that when Spoof increased its debt by $5,000 (perpetual and risk free) its stock price increased by $1.50. Use this info to find Spoof's tax rate, τS.

(ii) Calculate the share price of the combined firm;

(iii) What is the price-to-earnings ratio of the combined firm if Spoof's price-toearnings ratio is equal to 10?

Reference no: EM132971191

Questions Cloud

What were carla vista cash payments for operating expense : Using the direct method of reporting cash flows from operating activities, what were Carla Vista's cash payments for operating expenses?
What real rate of return did she earn : Treasury bills yielded 3.1 percent and the inflation rate was 4.2 percent. What real rate of return did she earn on her investments last year
When empirical information indicates yield curves downward : In General when empirical information indicates yield curves are downward slopping? short-term interest rates are about the same as long-term interest rates
Example of globalization strategies : Coca-Cola's decision to sell Coke throughout the world, but to use different marketing strategies and local management to do so, is an example of which of the f
What is the price-to-earnings ratio of the combined firm : What is the price-to-earnings ratio of the combined firm if Spoof's price-toearnings ratio is equal to 10
Formulation of objective and evaluation of strategy : Why the balance scorecard is an important aspect in the formulation of objective and evaluation of strategy?
What happened to the real price of internet service : What happened to the real price of internet service? The real price of internet service decreased by? The price of high speed internet service fell from 40 cent
What are some things can do more efficiently : What are the main items/tasks that take up most of your time? Do you see areas in your daily routine where you can make adjustments to become more productive?
Compute the total cost of completed and transferred : Assume the following cost data in continuation of Problem 1. Work in process, August 1: Compute the total cost of completed and transferred

Reviews

Write a Review

Financial Accounting Questions & Answers

  What amount should the building be recorded by fairchild co

The stock is widely traded and selling for $31 per share. At what amount should the building be recorded by Fairchild Company?

  How should the not-for-profit entity report the costs

How should the not-for-profit entity report these costs? Program service expenses of $100,000 and supporting service expenses of $160,000

  The real risk-free rate of return

You read in The Wall Street Journal that 30-day T-bills are currently yielding 5 percent. Your brother-in-law, a broker at Kyoto Securities, has given you the following estimates of current interest rate pre­miums: On the basis of these data, the rea..

  What is the most he can consume in his youth

He has an investment opportunity that costs $12,000 now in his youth and has a payoff of $15,000 in his old age. What is the most he can consume in his youth

  What is the purchase price of the bond of flint corporation

On January 1, 2020, Flint Corporation purchased a $1,160,000 bond issued by ALN Ltd. What is the purchase price of the bond?

  What is the expected rate of return on the preferred stock

The current price of the stock is $25.1. What is the expected rate of return on the preferred stock? Enter your answer as a percentage.

  Prepare journal entries to record first two interest payment

Please prepare the journal entry to record the issuance of the bonds. In using the effective-interest method, prepare the journal entries to record the first two interest payments.

  Illustrate what are associated with using average cost

Illustrate what problems are associated with using the average cost per unit as a performance measure? What problems are associated with using the variable cost per unit as a performance measure?

  Nbspnbspredrafting contribution margin statementsaustins

nbspnbspredrafting contribution margin statements.austins shooters inc. operates a paintball course where customers can

  What labor rate should the company charge

What labor rate should the company charge? A company total lavor and overhead costs are expected to be $194,804 for 4,874 hours. The company desires a profit

  What is the contribution margin per unit

Annual insurance $600/year Signage $100 rental/month Two-year loan for above start-up costs: $4,780. What is the contribution margin per unit

  Prepare journal entry to record Case income taxes

The enacted tax rate for 2021 is 20%. Prepare the appropriate journal entry to record Case's 2021 income taxes

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd