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Bruce buys
of Sketchy Corporation stock. Unfortunately, a major newspaper reveals the very next day that the company is being investigated for accounting fraud, and the stock price falls by
What is the percentage increase now required for the value of Bruce's stock to get back to what he paid for it?
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Solved in 2 steps
- A5 8d 8. Mr. Toriop owns 5000 shares of stock in Yummy Corporation. The company has announced that it will pay a dividend of $5 per share in one year and then a liquidating dividend of $50 per share in two years. The required return on ABC stock is 10%. d. Suppose Mr. Toriop is thinking about buying a house for $220,000 in one year. How can he use homemade leverage on Yummy Corporation’s dividends to achieve this goal? Check that the present value of the cash flows will be the same as they are before the homemade leverage.Question 3 Pantus, Inc., a manufacturer of cleaning products, just reported that its main production facility in Hong Kong was destroyed in a fire. While the plant was fully insured, the loss of production will decrease Pantus’ free cash flow by $50 million for the next three years. a) If Pantus has 45 million shares outstanding, weighted average cost of capital of 10% and equity cost of capital of 12%, what change in Pantus’ stock price would you expect upon this announcement? (Assume the value of Pantus’ debt -valued at $75 million- is not affected by the event.)Rose Apothecary has just purchased 22% (22,000 shares) of Warner Farms, Inc. They paid $15.30/share of stock. 6 months later, Warner Farms issues a cash dividend of $0.18 per share. 4 months later, due to a series of questionable cheeses, Warner Farms is in financial trouble. Warner Farms records a $250,000 loss. Shortly after the loss posted, Rose Apothecary decides to sell their shares. They sell all 22,000 shares for $3 per share. Required: Record the journal entries for all of the above transactions from the perspective of Rose Apothecary
- A5 8c 8. Mr. Toriop owns 5000 shares of stock in Yummy Corporation. The company has announced that it will pay a dividend of $5 per share in one year and then a liquidating dividend of $50 per share in two years. The required return on ABC stock is 10%. c. Mr. Toriop wishes to have equal amount of dividend income for the next two years. How can he use homemade leverage on Yummy Corporation’s dividends to achieve this goal? Check that the present value of the cash flows will be the same as they are before the homemade leverage. (Hint: Dividends will be in the form of an annuity.)ANSWER THE FOLLOWING: 3. Shares of ABC Corporation stock fell by 14% to close at Php538.75 per share. What was the value of the stock per share before the fall? 4. Poch placed Php2,500,000 in a time deposit that earns 0.75% per annum simple interest. The placement was made from October 10, 2021 until February 24, 2022. How much interest did he earn net of 20% withholding tax. Apply the Banker's Rule.Mm.2. Roybus, Inc., a manufacturer of flash memory, just reported that its main production facility in Taiwan was destroyed in a fire. Although the plant was fully insured, the loss of production will decrease Roybus's free cash flow by $181 million at the end of this year and by $57 million at the end of next year. a. If Roybus has 33 million shares outstanding and a weighted average cost of capital of 12.9%, what change in Roybus's stock price would you expect upon this announcement? (Assume that the value of Roybus's debt is not affected by the event.) b. Would you expect to be able to sell Roybus stock on hearing this announcement and make a profit? Explain.
- Q9 You invested $7500 of your own money and borrowed $7500 from your broker to purchase shares of a company trading at a share price of $2. You paid 10% interest on your borrowed money for one year. You sold the stock one year later for $1.28. How much money in total did you lose on this transaction including the interest you paid?Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. 1. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? Briefly explain your workings. 2. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price…Fill the blanks. Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. The company’s stock currently is valued at $42.00 per share. The company needs to raise new capital to invest in production. The company is looking to issue 5,000 new shares at a price of $33.60 per share. Larry worries about the value of his investment. Larry’s current investment in the company is $84,000. If the company issues new shares and Larry makes no additional purchase, Larry’s investment will be worth ______________. This scenario is an example of dilution. Larry could be protected if the firm’s corporate charter includes a preemptive right provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become ______________.
- Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? BU 1 Omicron Technologies made a before-tax profit of $50 million this year. The firm has no debt and 10 million shares outstanding, with a current market price of $45 per share. Its unlevered cost of capital is 10%. Omicron's board is meeting to decide whether to pay out the entire $50 million as a dividend or to use it to repurchase shares of the firm's stock in the open market. C) Suppose that Omicron's board decides to pay a dividend today. Now assume that Omicron pays corporate taxes of 30%. The marginal tax rate for shareholders is 35%. What is the after-tax dividend and effective tax rate for shareholders: i. Under a classical tax system ii. Under an imputation system (assuming that the dividend is 70% franked)?H5. The shareholders of the Pineapple Company need to elect seven new directors. There are 810,000 shares outstanding currently trading at $41 per share. You would like to serve on the board of directors; unfortunately, no one else will be voting for you. a. How much will it cost you to be certain that you can be elected if the company uses straight voting? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. How much will it cost you if the company uses cumulative voting? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) Show proper step by step calculation
