Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Question
BHP Billiton, an Australian company, just paid $0.85 as a dividend, which is expected to grow at 6.0 per cent. Its most recent stock price is $82. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 95 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 25 per cent corporate tax rate. In this year, the company has an EBIT of $3.15 million. Depreciation , the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. Therefore, you expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 15 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year-5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely.
Answer the following five (5) questions based on the above information and enter only the number as an answer, for example, 1234.56.
What is the value of the company ($)?
Answer
What is the price per share ($)?
Answer
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- The Ethereum Imports Company’s EPS in 2011 was $3.00, and in 2006 it was $1.90. The company’s payout ratio is 30%, and the stock is currently valued at $42. Flotation costs for new equity will be 7%. Net income in 2012 is expected to be $15 million. The market-value weights of the firm’s debt and equity are 40% and 60%, respectively.a. Based on the five-year track record, what is Dempere’s EPS growth rate? What will the dividend be in 2012?b. Calculate the firm’s cost of retained earnings and the cost of new common equity.c. Calculate the breakpoint associated with retained earnings.arrow_forwardNo-Growth Industries pays out all of its earnings as dividends. It will pay its next $6 per share dividend in a year. The discount rate is 21%. a. What is the price-earnings ratio of the company? b. What would the P/E ratio be if the discount rate were 20%?arrow_forwardJenkins, Inc., has equity with a market value of $22.6 million and debt with a market value of $11.3 million. The cost of debt is 8 percent per year. Treasury bills that mature in one year yield 4 percent per year, and the expected return on the market portfolio over the next year is 10 percent. The beta of the company's equity is 1.11. The firm pays no taxes. a. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the company's weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the cost of capital for an otherwise identical all-equity firm? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Debt-equity ratio b. Weighted average cost of capital C. Cost of capital 0.50 % %arrow_forward
- Use the following information: • Debt: $68,000,000 book value outstanding. The debt is trading at 89% of book value. The yield to maturity is 11%. Equity: 1,800,000 shares selling at $35 per share. Assume the expected rate of return on Federated's stock is 20%. Taxes: Federated's marginal tax rate is Te 0.21. Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 16.75% (D/V= 0.1675). The pre-tax cost of debt has dropped to 10.6%. The company's business risk, opportunity cost of capital, and tax rate have not changed. Use the three-step procedure to calculate Federated's WACC under these new assumptions. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Weighted-average cost of capital %arrow_forwardBHP Billiton, an Australian company, just paid $0.85 as a dividend, which is expected to grow at 5.0 per cent. Its most recent stock price is $72. Further, the company has a debt issue outstanding with 23 years to maturity that is quoted at 60 per cent of face value. The issue makes semiannual payments and has an embedded cost of 6 per cent annually. It considers a debt-equity ratio of 0.60 and a 22 per cent corporate tax rate. This year, the company has an EBIT of $3.15 million. Depreciation, the increase in net working capital, and capital spending were $265,000, $105,000, and $495,000, respectively. Therefore, you expect that over the next five years, EBIT will grow at 15 per cent per year, depreciation and capital spending will grow at 20 per cent per year, and NWC will grow at 10 per cent per year. It also has $19.5 million in debt and 400,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.50 per cent indefinitely. Answer the…arrow_forwardJenkins, Inc., has equity with a market value of $23.1 million and debt with a market value of $9.24 million. The cost of debt is 10 percent per year. Treasury bills that mature in one year yield 6 percent per year, and the expected return on the market portfolio over the next year is 11 percent. The beta of the company’s equity is 1.16. The firm pays no taxes. What is the cost of capital for an otherwise identical all-equity firm?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education