Tartan Industries Currently has total capital equal to $10 million, has zero clebt, is in the 25% federal Plus state tex bracket, has a net income of $4 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at aya!! Constant rate of 5% per year, 430,000 shares of stock are outstanding, and the current WACC is... 12.70% The company is considering a recapitalization where it will issue 33 million in debt and use the priceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the Is A recapitalization, its before -tax cost of debt will be 9% and its cost of equity will rise to 16.5%
Tartan Industries Currently has total capital equal to $10 million, has zero clebt, is in the 25% federal Plus state tex bracket, has a net income of $4 million, and distributes 40% of its earnings as dividends. Net income is expected to grow at aya!! Constant rate of 5% per year, 430,000 shares of stock are outstanding, and the current WACC is... 12.70% The company is considering a recapitalization where it will issue 33 million in debt and use the priceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the Is A recapitalization, its before -tax cost of debt will be 9% and its cost of equity will rise to 16.5%
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 13P
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Financial Ratios
A Ratio refers to a figure calculated as a reference to the relationship of two or more numbers and can be expressed as a fraction, proportion, percentage, or the number of times. When the number is determined by taking two accounting numbers derived from the financial statements, it is termed as the accounting ratio.
Return on Equity
The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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Tarton Industries Currently has total capital equel to
$10 million, has zero debt, is in the 25% federal
Plus state tax bracket, has a net income of
$4 million, and distributes 40% of its earnings as
dividends. Net income is expected to grow at a dyz!!
constant rate of 5% per year, 430,000 shares of
stock are outstanding, and the current WACC iss
***
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1149
12.70% von
برتا
The company is considering a recapitalization where it
will issue
33 million in debt and use the priceeds
to repurchase stock. Investment bankers have estimated
that if the company goes through with the is in Los
recapitalization, its before - tax cost of debt will be
9% and its cost of equity will rise to 16.5%.
a) What is the stock's current price per shave
(before the recapitalization)? Round your answer to the nearest
Sa
▷ cent.
b) Assuming that the company maintains the same
payment ratio, what will be its stock price following.
the recapitalization? Assume that shares are repurchased
at the price calculated in part A. Do not found
intermediate calculations. Rand your answer to the
nearest cent.
▷ $
10
20
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