Y7 Vader Enterprises stock has dropped 50% to $ 6 a share; there are100 million shares outstanding. The firm also has $1.4 billion (marketvalue) in debt outstanding (with an interest rate of 12%) and reportedearnings before interest and taxes of $ 300 million last year; the bookvalue of capital of the firm is $4 billion.The firm currently has a beta of 1.80, the risk free rate is 5% and themarket risk premium is 4%; the tax rate is 40%. The CEO takes issuesnew equity, reduces the market debt to capital ratio to 40% andreduces the interest rate on debt to 8%. Estimate the new cost ofcapital

WACC stands for Weighted Average Cost of Capital, which is the average cost of financing a company's…

Answered: Vader Enterprises stock has dropped 50%…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter14: Distributions To Shareholders: Dividends And Repurchases

Section: Chapter Questions

Problem 12P: Bayani Bakerys most recent FCF was 48 million; the FCF is expected to grow at a constant rate of 6%....

See similar textbooks

Similar questions

Bayani Bakerys most recent FCF was 48 million; the FCF is expected to grow at a constant rate of 6%. The firms WACC is 12%, and it has 15 million shares of common stock outstanding. The firm has 30 million in short-term investments, which it plans to liquidate and distribute to common shareholders via a stock repurchase; the firm has no other nonoperating assets. It has 368 million in debt and 60 million in preferred stock. a. What is the value of operations? b. Immediately prior to the repurchase, what is the intrinsic value of equity? c. Immediately prior to the repurchase, what is the intrinsic stock price? d. How many shares will be repurchased? How many shares will remain after the repurchase? e. Immediately after the repurchase, what is the intrinsic value of equity? The intrinsic stock price?
CSL Corporation is a mid-sized transportation firm with 10 million shares outstanding, trading at $ 25 per share and debt outstanding of $ 50 million. It is estimated that the cost of capital, which is currently 11%, will drop to 10%, if the firm borrows $ 100 million and buys back stock. Estimate the expected change in the stock price if the expected growth rate in operating earnings over time is 5%.
Corner Company is estimated to generate $18 million in available cash flow in the first year, and this is expected to grow at a constant rate of 5% per year. The company has no debt or preferred stock and its weighted average cost of capital (WACC) is 9%. Calculate the value per share, considering that the company has $32 million in outstanding shares. Calculate the nominal rate of return on a perpetual preferred stock with a par value of $200, a dividend of 9% of par value, and a current market price of $100.
Ornaments, Inc., is an all-equity firm with a total market value of $608,000 and 26,200 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $88,850 if the economy is normal. If there is a recession, EBIT will be 24 percent lower, and if there is a boom, EBIT will be 35 percent higher. The tax rate is 35 percent. What is the EPS in a recession? Round to two places past the decimal point and format as "X.XX"
Ornaments, Inc., is an all-equity firm with a total market value of $641,000 and 30,600 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $91,700 if the economy is normal. If there is a recession, EBIT will be 15 percent lower, and if there is a boom, EBIT will be 25 percent higher. The tax rate is 35 percent. What is the EPS in a recession?
Ornaments, Incorporated, is an all-equity firm with a total market value of $542,000 and 20,700 shares of stock outstanding. Management believes the earnings before interest and taxes (EBIT) will be $76,400 if the economy is normal. If there is a recession, EBIT will be 20 percent lower, and if there is a boom, EBIT will be 30 percent higher. The tax rate is 21 percent. What is the EPS in a recession?
Biarritz Corp. is growing quickly. Dividends are expected to grow at a rate of 32 percent for the next three years, with the growth rate falling off to a constant 6.2 percent thereafter.If the required return is 14 percent and the company just paid a dividend of $2.85, what is the current share price? Antiques 'R' Us is a mature manufacturing firm. The company just paid a dividend of $11.40, but management expects to reduce the payout by 4.75 percent per year, indefinitely. If you require a return of 8 percent return on this stock, what will you pay for a share today?
Leni Inc. is an all-equity firm. At the end of the current year, the CFO expects EBIT to be $10M, and the same earnings are expected annually in perpetuity. The company is not growing, so CAPEX and investments in net working capital are zero. Leni's shareholders require a return of 8%. Leni has 20 million shares outstanding. The corporate tax rate is 30%. What is the market value of Leni's shares?
Houston Tools has expected earnings before interest and taxes of $236,800, an unlevered cost of capital of 12.65 percent, and a tax rate of 35 percent. The company has $420,000 of debt that carries a 7 percent coupon. The debt is selling at par value. What is the value of this firm?
Taggart Goods Corp. just reported a net income of $11,000,000, and its current stock price is $23.00 per share. Taggart is forecasting an increase of 25% for its net income next year, but it also expects it will have to issue 2,300,000 new shares of stock (raising its shares outstanding from 5,500,000 shares to 7,800,000 shares). If Taggart’s forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does management expect its stock price to be one year from now? $20.24 per share $23.00 per share $15.18 per share $25.30 per share One year later, Taggart Goods Corp.’s stock is trading at $38.00, and the company reports its common equity value as $31,574,400. What is Taggart Goods Corp.’s market-to-book (M/B) ratio? Is it possible for a company to have a negative EPS and thus a negative P/E ratio?.
Pro Build Inc. has had a net income of $16 million in its most recent year. Net income is expected to grow by 3% per year. The firm always pays out 60% of net income as dividends and has 4 million shares of common stock outstanding. The required return is 13%. What is the intrinsic value of the stock?
Scampini Technologies is expected to generate $25 million in free cash flow next year, and FCF is expected to grow at a constant rate of 4% per year indefinitely. Scampini has no debt or preferred stock, and its WACC is 10%. If Scampini has 35 million shares of stock outstanding, what is the stock's value per share? Do not round intermediate calculations. Round your answer to the nearest cent. Each share of common stock is worth $ ? , according to the corporate valuation model.

SEE MORE QUESTIONS

Recommended textbooks for you

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS