ABT is a venture capital firm, they focus their investments on software companies in the US. Their most recent investment opportunity is in VMware corporation. They decide to invest in VMware and want to buy 300,000 shares. VMware corporation’s current stock price is $123.58, and the expected dividend yield is 6.1%. How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future?

ABT is a venture capital firm, they focus their investments on software companies in the US. Their most recent investment opportunity is in VMware corporation. They decide to invest in VMware and want to buy 300,000 shares. VMware corporation’s current stock price is $123.58, and the expected dividend yield is 6.1%. How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter14: Property Transact Ions: Capital Gains And Losses, § 1231, And Recapture Provisions

Section: Chapter Questions

Problem 43P

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ABT is a venture capital firm, they focus their investments on software companies in the US. Their most recent investment opportunity is in VMware corporation. They decide to invest in VMware and want to buy 300,000 shares. VMware corporation’s current stock price is $123.58, and the expected dividend yield is 6.1%. What is the expected value of the first dividend payment at the end of the year? b) How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future
A privately held corporation, is making plans for future investments that can increase growth. The company’s manager has recommended that the company “go public” by issuing common stock to raise the funds needed to support the growth. The current owners, who founded the firm, are worried that control of the firm will be diluted by this strategy. If the company undertakes an IPO, it is estimated that each share of stock will sell for $6.25, the investment banking fee will be 22 percent of the total value of the issue. If the founders must issue stock to finance the growth of the firm, what would you recommend they do to protect their controlling interest for at least a few years after the IPO?
A privately held corporation, is making plans for future investments that can increase growth. The company’s manager has recommended that the company “go public” by issuing common stock to raise the funds needed to support the growth. The current owners, who founded the firm, are worried that control of the firm will be diluted by this strategy. If the company undertakes an IPO, it is estimated that each share of stock will sell for $6.25, the investment banking fee will be 22 percent of the total value of the issue. The founders now hold all of the company’s stock: 8 million shares. If the company issues 8 million shares, what proportion of the stock will the founders own after the IPO?
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $900,000 and received 10 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.20 million and wants to own 39% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 39% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)?
Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and the impact of both decisions on the firm. Just Right plans to spend $85,000 in respect of both scenarios. Just Right’s current earnings are $2.10 per share, and the stock currently sells for $45 per share. Just Right currently has 5,000 shares outstanding.You own one share of stock in this company.If the company issues the dividend, what will your total investment be worth?
At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $13 per share. If the investors pay $100.15 per share for their investment, then what is Tamin's cost of preferred stock?
ust Right Incorporated is considering the option of an extra dividend versus a share repurchase and the impact of both decisions on the firm. Just Right plans to spend $85,000 in respect of both scenarios. Just Right’s current earnings are $2.10 per share, and the stock currently sells for $45 per share. Just Right currently has 5,000 shares outstanding. You own one share of stock in this company. If the company issues the dividend, what will your total investment be worth? If the company pursues a share repurchase what will be your total investment be worth? Kindly Ignore taxes and other imperfections.
Starware Software was founded last year to develop software for gaming applications. The founder initially invested $800,000 and received 12 million shares of stock. Starware now needs to raise a second round of capital, and it has identified a venture capitalist who is interested in investing. This venture capitalist will invest $1.00 million and wants to own 13% of the company after the investment is completed. a. How many shares must the venture capitalist receive to end up with 13% of the company? What is the implied price per share of this funding round? b. What will the value of the whole firm be after this investment (the post-money valuation)?
The CFO of General Electric corporation is deciding if his company should invest 500,000 shares of Lightbridges industries.They manufacture innovative smart led light systems for residential homes.Lightbridge industries stock price is currently listed at $24.84 per share, and the expected dividend yield is 5.4%. a) What is the expected value of the first dividend payment at the end of the year? b)How would you use the dividend yield model to value the price of a stock if it presently does not pay dividends but is expected to pay dividends in the future?
Lana is thinking about making an iventment in a new venture called BluePearl - after performing an analysis of similar firms, she discovered several other firms (3) with the following Enterprise Value to FCF ratios: Firm 1: 5.9 Firm 2: 7.6 Firm 3: 9.1 The cashflows for BluePearl this year are expected to be $1,300,000. If BluePearl doesn't have any debt or cash currently, and 700,000 shares outstanding - what is the Price Per Share for BluePearl?
Monkey Inc. is debating whether to convert its all-equity capital structure to one that is 40% debt. There are currently 300,000 shares outstanding and the price per share is $40. EBIT is expected to remain at $650,000 per year forever. The interest rate on new debt is 6% and it is a perfect capital market. Andi, a shareholder of the firm, has 3,000 shares. Suppose the firm converts but she prefers the current all-equity capital structure. What strategy would she use to achieve her desired cash flows? A) Sell 1,200 shares of the firm and invest the proceeds of $36,000 at 6% interest. B) Sell 1,200 shares of the firm and invest the proceeds of $48,000 at 6% interest. C)Sell 1,800 shares of the firm and invest the proceeds of $36,000 at 6% interest. D) Sell 1,800 shares of the firm and invest the proceeds of $48,000 at 6% interest. E) None of the above.
You have started a company and are in luck—a venture capitalist has offered to invest. You own 100% of the company with 4.96 million shares. The VC offers $1.12 million for 820,000 new shares. a. What is the implied price per share? b. What is the post-money valuation? c. What fraction of the firm will you own after the investment?