assignment 7

P9

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solve b c and d

Problem 4 Beta Co. currently has 1 million shares outstanding each selling for $50. It is contemplating a 2-for-1 stock split. The firm believes that its total market value would remain constant after the split. 1. What is the Beta's expected price after the split?* 3 pomts O a. $75 per share b. $100 per share O c. $25 per share d. $30 per share e. None of the above

elizabeth eaarns $9.50 a share, sells for $90, and pays a $6 per sharedeviden. the stock is split two for one and a $3 pers share cash dividend is diclared. what will be the new price of the stock? if the firms total earnings to do not change, what is the payout ratio before and after stock split?

2:25 1 LTE What is the rate of return when 25 shares of Stock A, purchased for $30/share, are sold for $825? The commission on the sale is $6. Skip Rate of Return = [ ? ] % Give your answer as a percent rounded to the nearest tenth. Enter Done W e r y u ор a S d f g h j k C V n m 123 space return Help Resources

Q3. Around the announcement date of a merger, acquiring firm shareholders of large publicly traded firms normally earn        a. –20% abnormal returns b. Zero to slightly negative returns c. Zero to 30% positive abnormal returns d. 100% positive abnormal returns e. Zero to slightly positive returns

Effects of a Stock Exchange [LO3] Consider the following premerger information about Firm A and Firm B: Total earnings Shares outstanding Price per share Firm A $4,350 1,600 $ 43 Firm B $1,300 400 $ 47 Assume that Firm A acquires Firm B via an exchange of stock at a price of $49 for each share of B's stock. Both Firm A and Firm B have no debt outstanding. a. What will the earnings per share (EPS) of Firm A be after the merger? b. What will Firm A's price per share be after the merger if the market incorrectly analyzes this reported earnings growth (that is, the price-earnings ratio does not change)? c. What will the price-earnings ratio of the postmerger firm be if the market cor- rectly analyzes the transaction? d. If there are no synergy gains, what will the share price of Firm A be after the merger? What will the price-earnings ratio be? What does your answer for the share price tell you about the amount Firm A bid for Firm B? Was it too high? Too low? Explain.

Single infinite stage Michelle wants to value the stock of Gamma Corporation and gathers the following information: Current market price per share . Current book value per share $94 $46 • Perpetual return on equity 18% • Perpetual growth rate 2% • Required return on equity 12% Which a. The value of the company's according to a single stage RI model is closest to: $ Number Round your answer to the nearest cent. b. How the stock is valued on a relative basis (choose the correct one): ○ fairly valued O undervalued O overvalued

M12-20

Question 21 As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D 0 = $0.80; P 0 = $22.50; and g L = 8.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings?   a. 11.25%   b. 10.69%   c. 11.84%   d. 12.43%   e. 13.05% Muscarella Inc. has the following balance sheet and income statement data: Cash $  14,000 Accounts payable $  42,000 Receivables 70,000 Other current liabilities     28,000 Inventories   210,000    Total CL $  70,000    Total CA $294,000 Long-term debt 70,000 Net fixed assets   126,000 Common equity   280,000    Total assets $420,000    Total liab. and equity $420,000 Sales $280,000     Net income $  21,000     The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70,…

Assume you entered a 1,500 share short position in Pollution Co. at $37/share, which is the only position currently in this trading account. The initial margin you were required to post was 50% and the maintenance margin is 35%. b. If the share price does rise just enough to trigger a margin call,(i) how much margin will remain in the account when you receive the margin and (ii) how much additional cash will you be required to contribute to the account in order to maintain the short position?

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As an analyst of Firm A, you are investigating the possible acquisition of Firm T. You estimate that investors currently expect a 6% growth in A's earnings and dividends. Under new management this growth rate would be increased to 8%, without any additional capital investment. You are considering a stock swap merger. What is the maximum exchange ratio that you can afford? EPS Dividend/Share Number of Shares Stock Price Firm A $5 $3 1000000 $90 Firm T $1.5 $0.8 600000 $20