What is the stocks current price per share

Assignment Help Financial Management

Reference no: EM131020977

Tapley Inc. currently has total capital equal to $5 million, has zero debt is in the 40% federal-plus-state tax bracket, has a net income of $1 million and pays out 40% of its earnings as dividends. Net income is expected to grow at a constant rate of 5% per year, 200000 shares of stock are outstanding and the current WACC is 13.40%

The company is considering a recapitalization where it will issue $1 million un debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the recapitalization, its before-tax cost of debt will be 11% and its cost of equity will rise to 14.5%.

What is the stock's current price per share (before the recapitalization)?

Assuming the company maintains the same payout ratio what will be the stock price following recapitalization? Assume shares are repurchased at the price calculated in part a.

Reference no: EM131020977

Questions Cloud

Representative investors average degree of risk aversion : The expected rate of return on the market portfolio is 11.50% and the risk–free rate of return is 2.00%. The standard deviation of the market portfolio is 19.75%. What is the representative investor’s average degree of risk aversion?

Expansion project-requires initial fixed asset investment : Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.58 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,040,000 in annual sale..

Review and reflection - what have you learned from responses : What were the most compelling points from the interaction and how did participating in this discussion help in your understanding of the Discussion Board task?

How would you define the nature of philosophical knowledge : There are many people (economics) of great interest who have contributed theories, ideas etc. which have assisted our nation`s leaders both in goverment and business in looking at our economy and advising them on future policies and activities.

What is the stocks current price per share : Tapley Inc. currently has total capital equal to $5 million, has zero debt is in the 40% federal-plus-state tax bracket, has a net income of $1 million and pays out 40% of its earnings as dividends. What is the stock's current price per share (before..

How many rights are needed to purchase one share : Consolidated Power wants to raise $15 million in new equity. The subscription price is $15. There are currently 4 million shares outstanding, each with 1 right. How many rights are needed to purchase 1 share?

What is the present value of the venezuelan bond : (Risky Business) Suppose we are considering investing in a Venezuelan bond. The Venezuelans have just cast off Chavismo, but 17 years of rule by Ch´avez has left the country in tatters: inflation and crime are high and debt owed is more than the rese..

Sold the shares of international inns stock : Wilma just sold the shares of International Inns stock that she owed for $156 per share she purchased the stock one year ago for $150 per share. If Wilma did not receive any dividend payments during the year, what yield did she earn on her investment..

Critically analyze fundamental issues : Meet the learning outcomes listed above, identify and critically analyze fundamental issues related to strategic management. Undertake a study that shows clear evidence of synthesis and evaluation.

User Account

All Pages