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BL Plastics is an all equity firm that has 27,000 shares of stock outstanding. The company has decided to borrow $46,080 to buy out the shares of a deceased stockholder who holds 600 shares. What is the total value of this firm if you ignore taxes?
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- Lara’s Inc. is currently an unlevered firm with 450,000 shares of stock outstanding, with a market price of $15 a share. The company has earnings before interest and taxes of $314,000. Lara's met with his bankers, Warne Incorporated and agreed to borrow $825,000, at 5 percent. You are an ardent investor and you currently own 20,000 shares of Lara's stock. If you seek to unlevered your position; how many shares of Lara's stock will you continue to own, if you can loan out funds at 5 percent interest? Ignore taxes in your deliberations. Kindly show all workingsSmith Manufacturing is currently all equity financed, had EBIT of £2 million, and is in the 34% tax bracket. John, the company's founder, is the lone shareholder. Assume that all earnings are paid out as dividends. Now consider the fact that John must pay personal tax on the dividends he will receive. John pays taxes on interest at a rate of 33%, but pays taxes on dividends at a rate of 28%. If the firm were to convert £4 million of equity into debt at an interest rate of 10% and John holds all the debt, calculate the total cash flow to John after he pays personal taxes. Compare this to John’s total cash flow after personal taxes if the firm remains unlevered. What is the change in John’s cash flows after personal taxes if the firm becomes levered?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 $48.00 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 $38.40 per share. Larry worries about the value of his investment. Larry’s current investment in the company is . If the company issues new shares and Larry makes no additional purchase, Larry’s investment will be worth . This scenario is an example ofdilution . Larry could be protected if the firm’s corporate charter includes apreemptive right provision. If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become
- Fishwick Enterprises has 201,500 shares outstanding, half of which are owned by Jennifer Fishwick and half by her cousin. The two cousins have decided to sell 101,000 shares in an IPO. Half of these shares would be issued by the company to raise new cash, and half would be shares that are currently held by Jennifer Fishwick. Suppose that the shares are sold at an issue price of $50 but rise to $80 by the end of the first day’s trading. Suppose also that investors would have been prepared to buy the issue at $80. a. Percentage of ownership 20 % b. Stock value $4,020,000 c. Number of shares 63,125 d. Total wealth ?? million e. Cost of underpricing shares ?? millionParadise Travels is an all-equity firm that has 9,000 shares of stock outstanding at a market price of $27 a share. Management has decided to issue $25,000 worth of debt and use the funds to repurchase shares of the outstanding stock. The interest rate on the debt will be 7.3 percent. What are the earnings per share at the break-even level of earnings before interest and taxes? Ignore taxes.Johnson and Bradley Inc. invested $10,000 in 200 shares of ABC stock 18 months ago, and just sold all of them for $12,500. If it is subject to a tax rate of 21%, what is the tax rate on this investment income?
- Smith Manufacturing is currently all equity financed, had EBIT of £2million, and is in the 34% tax bracket. John, the company's founder, is the lone shareholder. Assume that all earnings are paid out in dividends. Now consider the fact that John must pay personal tax on the dividends he will receive. John pays taxes on interest at a rate of 33% but pays taxes on the dividends at a rate of 28%. If the firm were to convert £4million of equity into debt at an intetest rate of 10% and John holds all the debt, calculate the total cash flow to John after he pays personal taxes. Compare this to John's total cash flow after personal taxes if the firm remains unlevered. What is the change in John's cash flows after personal taxes if the firm becomes levered. a. -£190,080 b. £77,920 c. £150,220 d. £0 e. none of the abovePaul Altero has gone public with his Bubbakoos Buritos restaurant chain. His current capital structure is as follows: 10,000 shares of common stock at $20 per share at a cost of 14%; 3,200 shares of preferred stock at $40 per share at a cost of 11%; and 600 bonds at $980 each at a before-tax cost of 9%. If his corporate tax rate is 25%, what should be the company’s required rate of return?Lythol mining is firm that has 32mn shares outstanding for his most recent financial year , Lythol made $100 mn in taxable profit. The firm is subject to a corporate tax rate of 30%.The firm has decided it will not retain any of the earnings but will pay out all to shareholders .assuming you are a shareholder of Lythol will a marginal tax rate of 40%and holding 12000 shares how much tax will you pay on your dividends ?A.$9600 B.$11120 C.$8500 D.$4800
- Bullant Inc. has decided to go public and has sold 2 million of its shares to its underwriter for $20 per share. The underwriter then sold them to the public for $22 each. Bullant also encountered $0.5 million in administrative fees. Soon after the issue, the stock price rose to $25. Find Bullant s total cost of this issue including any underpricing.Boda Cycling Corp is an all-equity firm that has 425,000 shares of stock outstanding. The company is in the process of borrowing $3.2 million at 5.5 percent interest to repurchase 90,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes? $3,200,000 $677,647 $8,421,053 $15,111,111Charleston Corporation (CC) now operates as a "regular" corporation, but it is considering a switch to S Corporation status. CC is owned by 100 stockholders who each hold 1% of the stock, and each faces a personal tax rate of 35%. The firm earns $3,700,000 per year before taxes, and since it has no need for retained earnings, it pays out all of its earnings as dividends. Assume that the corporate tax rate is 34% and the personal tax rate is 35%. How much more (or less) spendable income would each stockholder have if the firm elected S Corporation status? a. $10,139 b. $7,605 c. $6,787 d. $8,177 e. $8,749
