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Seger, Inc., is an unlevered firm with expected annual earnings before taxes of $30 million in perpetuity. The current required return on the firm's equity is 20 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 30 percent. The firm is planning a recapitalization under which it will issue $35 million of perpetual 8 percent debt and use the proceeds to buy back shares.
Calculate the value of the company before the recapitalization plan is announced. What is the value of equity before the announcement? What is the price per share?
Use the APV method to calculate the company value after the recapitalization plan is announced. What is the value of equity after the announcement? What is the price per share?
How many shares will be repurchased? What is the value of equity after the repurchase has been completed? What is the price per share?
Use the flow to equity method to calculate the value of the company's equity after the recapitalization.
Kelly Greene has a contract in which she will receive the following payments for the next five years: $4,000, $5,000, $6,000, $7,000 and $8,000. She will then receive an annuity of $10,000 a year from the end of the 6th through the end of the 15th..
Suppose you purchased one of these bonds at par value when it was issued. Right away, market interest rates jumped, and the YTM on your bond rose to 6%. What happened to the price of your bond
The current price of the $1,000 bond is $978. On February 1, you purchase $10,000 face amount, and your broker charges a $25 commission. How much must you remit for the purchase
A firm has been losing sales due to technological obsolescence. It projects growth for the future to be -2%. Its recent divided was $2.00. What is the value of this stock when the required return is 9%
Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. Round your answers to the nearest cent.
An investment project has annual cash inflows of $4,900, $3,400, $4,600, and $3,800, and a discount rate of 13 percent. a) What is the discounted payback period for these cash flows if the initial cost is $5,200
The dividend for Should I, Inc., is currently $1.2 per share. It is expected to grow at 20 percent next year and then decline linearly to a 5 percent perpetual rate beginning in four years.
Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8 percent, so the prices of bonds A and B are $1,000 and $1,268 respectively.
Calculate the price of a zero coupon bond that matures in 23 years if the market interest rate is 4.2 percent.
For 2012, Everyday Electronics reported $22.5 million of sales and $18 million of operating costs (including depreciation). The company has $15 million of investor-supplied operating capital.
Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month was $307,000 and that 15,000 diners had been served.
what is the implied nominal interest rate on a treasury bond $100,000 futures contract that settled at 100-160. If interest rates increased by 1%, what would be the contract's new value.
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