Fin 8091

3777 Words16 Pages
1. Hole Foods Donuts, Ltd. has generated profits of $2 per share for many years and has consistently paid 100% of those profits to shareholders via a dividend. Investors do not expect Hole Foods Donuts to grow in the future. The company has 200,000 shares of stock outstanding worth $20 per share. Suppose the firm decides to eliminate its dividend and instead use the money to repurchase shares. A. Assuming that there are no taxes and that the repurchase announcement conveys no new information to investors about the profitability or risk of Hole Foods Donuts, how do you think the stock price will react to announcement? Provide a written (in words) explanation or a numerical example to provide support for your answer. If there are no…show more content…
Please back your advice up with appropriate calculations. Discount:- 1.5, Credit Period:- 80, Discount Period:- 10 = 0.078 X 100 = 7.8% C. Please advise Justo Ltd on its cheapest course of action if the firm’s suppliers take action on outstanding accounts when they remain unpaid at the start of the 31th day after the date of the date of the invoice. Please back your advice up with appropriate calculations. Discount:- 1.5, Credit Period:- 31, Discount Period:- 10 = 0.26 X 100 = 26 3. Upsilon Ltd has the following (independent) investment opportunities: Name Outlay IRR Project A $20,000,000 16% Project B $20,000,000 15% Project C $10,000,000 14% Project D $10,000,000 13% Project E $10,000,000 12% The optimal capital structure calls for financing all projects with 60% ordinary equity and 40% debt. The most recent dividend (Do) was $0.60 the growth rate of earnings and dividends is 6% per year. The current price of share is $6. The company has bonds that were issued with a coupon rate of 11% and a yield to maturity of 13%. The company’s dividend pay-out ratio is 25%, and it is in a 36% tax bracket. Upsilon Ltd earned $20million last year after taxes. A. Calculate Upsilon Ltd’s WACC. (rd= Cost of Debt, re= Cost of Equity, D=
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