The Elkmont Corporation needs to raise $67.9 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $23 per share and the company's underwriters charge a spread of 7.5 percent. How many shares need to be sold? Note: 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. Number of shares offered

The Elkmont Corporation needs to raise $67.9 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $23 per share and the company's underwriters charge a spread of 7.5 percent. How many shares need to be sold? Note: 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. Number of shares offered

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 8P

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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?
Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted your help. LL has 20 million shares of stock trading at $12 per share. Security analysts estimate LL’s beta to be 1.25. The risk-free rate is 5.5% and the market risk premium is 4%. LL’s capital structure is 20% financed with debt at an 8% interest rate; any additional debt due to the acquisition also will have an 8% rate. LL has a 25% federal-plus-state tax rate, which will not change due to the acquisition. The following data incorporate expected synergies and required levels of total net operating capital for LL should Hager’s complete the acquisition. The forecasted interest expense includes the combined interest on LL’s existing debt and on new debt. After 2024, all items are expected to grow at a constant 6% rate. Note: aDebt is added on the first day of the year, so the 2019 debt is LL’s debt prior to the acquisition. Hager’s management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager’s board: What are the steps in valuing a merger using the compressed APV approach?
Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted your help. LL has 20 million shares of stock trading at $12 per share. Security analysts estimate LL’s beta to be 1.25. The risk-free rate is 5.5% and the market risk premium is 4%. LL’s capital structure is 20% financed with debt at an 8% interest rate; any additional debt due to the acquisition also will have an 8% rate. LL has a 25% federal-plus-state tax rate, which will not change due to the acquisition. The following data incorporate expected synergies and required levels of total net operating capital for LL should Hager’s complete the acquisition. The forecasted interest expense includes the combined interest on LL’s existing debt and on new debt. After 2024, all items are expected to grow at a constant 6% rate. Note: aDebt is added on the first day of the year, so the 2019 debt is LL’s debt prior to the acquisition. Hager’s management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager’s board: Why can’t we estimate LL’s value to Hager’s by discounting the FCFs at the WACC? What method is appropriate? Use the projections and other data to determine the LL division’s free cash flows and interest tax savings for 2020 through 2024. Notice that the LL division’s sales are expected to grow rapidly during the first years before leveling off at a sustainable long-term growth rate.
Hager’s Home Repair Company, a regional hardware chain, which specializes in “do-it-yourself” materials and equipment rentals, is considering an acquisition of Lyon Lighting (LL). Doug Zona, Hager’s treasurer and your boss, has been asked to place a value on the target and he has enlisted your help. LL has 20 million shares of stock trading at $12 per share. Security analysts estimate LL’s beta to be 1.25. The risk-free rate is 5.5% and the market risk premium is 4%. LL’s capital structure is 20% financed with debt at an 8% interest rate; any additional debt due to the acquisition also will have an 8% rate. LL has a 25% federal-plus-state tax rate, which will not change due to the acquisition. The following data incorporate expected synergies and required levels of total net operating capital for LL should Hager’s complete the acquisition. The forecasted interest expense includes the combined interest on LL’s existing debt and on new debt. After 2024, all items are expected to grow at a constant 6% rate. Note: aDebt is added on the first day of the year, so the 2019 debt is LL’s debt prior to the acquisition. Hager’s management is new to the merger game, so Zona has been asked to answer some basic questions about mergers as well as to perform the merger analysis. To structure the task, Zona has developed the following questions, which you must answer and then defend to Hager’s board: Briefly describe the differences between a hostile merger and a friendly merger.