Consider this example:Shares of Ex Why Zee, Inc. (ticker symbol: XYZ) are currentlytrading at $6 per share. XYZ plans to issue $6M in short termdebt and use the money they borrow to repurchase $6M worthof their own stock. What effect will the debt issuance andshare repurchase have on the balance sheet?There isn't enough information to answer this questionAssets will increase by $6MLiabilities will decrease by $6MNumber of Shares Outstanding will increase by 1 millionEquity will decrease by $6M

Shareholder equity means the amount that belong to the owner of the company i.e. share holder.Profit…

Answered: Consider this example: Shares of Ex Why…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 11P

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Similar questions

Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million; it has $387.5 million in debt and zero preferred stock. As mentioned previously, IWT has 100 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: What is Rivoli’s intrinsic value of operations (i.e., its unlevered value)? What is its intrinsic stock price? Its earnings per share? Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 12% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based on the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
Suppose that Papa Bell Inc. equity is currently selling for $41 per share, with 3.6 million shares outstanding. The firm also has 8000 bonds outstanding, which are selling at 95% of par. Assume Papa Bell was considering an active change to its capital structure so as to have a D/E ratio of 0.5. Which type of security (stocks or bonds) would the firm need to sell to accomplish this? How much would it have to sell? (Enter your answer in dollars not in millions. Do not round immendiage calculations and round your final answer to 2 decimal places.)
Company B has a net incme $2million and has 1 million shares. the company is considering a plan to repurchased 20% of its shares in open market. share price is trading at $32 per share. Currently the repurchased is expected to have no effect on its net income and PE ratio. what will be the stock pricefollowing the stock repurchased?
The Dunn Corporation is planning to pay dividends of $540000. There are 270000 shares outstanding, and earnings per share are $4. The stock should sell for $48 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,a. What should be the repurchase price? b. How many shares should be repurchased? c. What if the repurchase price is set below or above your suggested price in part a? d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock? a. 3/10, net 45 b. 3/15 net 30 c. 3/15 net 60 d.2/10 net 45
The investment banking firm of Einstein & Co. will use a dividend valuation model to appraise the shares of the Modern Physics Corporation. Dividends (D1) at the end of the current year will be $1.64. The growth rate (g) is 8 percent and the discount rate (Ke) is 13 percent. What should be the price of the stock to the public? If there is a 7 percent total underwriting spread on the stock, how much will the issuing corporation receive? If the issuing corporation requires a net price of $31.30 (proceeds to the corporation) and there is a 7 percent underwriting spread, what should be the price of the stock to the public? (Round to two places to the right of the decimal point.)
A. Suppose that Taco John’s equity is currently selling for $55 per share, with 4million shares outstanding. If the firm also has 17 thousand bonds outstanding,which are selling at 94 percent of par, what are the firm’s current capital structure weights? Use the capital structure weights equation:B. Suppose that Taco John’s is considering an active change to their capital structure so as to have a D/E of 0.4, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?
The common stock and debt of Northern Sludge are valued at $66 million and $34 million, respectively. Investors currently require a return of 15.6% on the common stock and 8.1% on the debt. If Northern Sludge issues an additional $17 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the risk of the debt and that there are no taxes (do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places).
he total book value of WTC’s equity is $7 million, and book value per share is $14. The stock has a market-to-book ratio of 1.5, and the cost of equity is 12%. The firm’s bonds have a face value of $4 million and sell at a price of 110% of face value. The yield to maturity on the bonds is 9%, and the firm’s tax rate is 21%. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) WACC= ______%
The common stock and debt of Northern Sludge are valued at $72 million and $12 million, respectively. Investors currently require a 16.4% return on the common stock and/an 7.3% return on the debt. If Northern Sludge issues an additional $12 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern's debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.)
The common stock and debt of Northern Sludge are valued at $72 million and $28 million, respectively. Investors currently require a 16.4% return on the common stock and a/an 7.3% return on the debt. If Northern Sludge issues an additional $12 million of common stock and uses this money to retire debt, what happens to the expected return on the stock? Assume that the change in capital structure does not affect the interest rate on Northern’s debt and that there are no taxes. (Do not round intermediate calculations. Enter your answer as a percent rounded to two decimal places.)
Digital Fruit is financed solely by common stock and has outstanding 27 million shares with a market price of $10 a share. It now announces that it intends to issue $180 million of debt and to use the proceeds to buy back common stock. There are no taxes. a. What is the expected market price of the common stock after the announcement? b. How many shares can the company buy back with the $180 million of new debt that it will issue? (Enter your answer in millions rounded to 1 decimal place.) c. What is the market value of the firm (equity plus debt) after the change in capital structure? (Enter your answer in millions.) d. What is the debt ratio after the change in capital structure? (Enter your answer as a whole percent.)

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