xuestion/ A company issues new shares to fund a new manufacturing plant. Explain the meaning of the Arbitrage Theorem with respect to the price of the new shares.
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- Indicate whether the following statements are true or false. If the statement is false, explainwhy.a. If a firm repurchases its stock in the open market, the shareholders who tender thestock are subject to capital gains taxes.b. If you own 100 shares in a company’s stock and the company’s stock splits two-forone,you will own 200 shares in the company following the split.c. Some dividend reinvestment plans increase the amount of equity capital available tothe firm.d. The Tax Code encourages companies to pay a large percentage of their net income inthe form of dividends.e. If your company has established a clientele of investors who prefer large dividends,the company is unlikely to adopt a residual dividend policy.f. If a firm follows a residual dividend policy, holding all else constant, its dividendpayout will tend to rise whenever the firm’s investment opportunities improve.An example of indirect finance is when the company issues new shares of stock Select one:TrueFalseNizwa investment company is willing to buy the equity shares directly from various companies as they think that buying the shares at the first moment will always give benefits for long timeThe market from where this transaction will be carried out is termed as a.Primary Market b.Regular Market c.Secondary Market d.None of the options A financial statement which shows the status of the worth of a company on a certain date is known as a.Cash flow statement b.Balance Sheet c.All of the options
- Company A has a market capitalization of $2410539999 and 22833777 shares outstanding. It plans to distribute $35977773 through an open market repurchase. Assuming perfect capital markets: What will the price per share of the firm be right after the repurchase?CELFIN S.A. is not a publicly traded company and is faced with determining cost of capital rate to evaluate various investment projects. Following table shows data of companies that are traded on stock exchange and belong to same industrial sector in which CELFIN operates. Firm Beta of stock Stock market presence R2 Value Target debt Ratio (D/P) Cost of debt CARMAQ 1,20 90% 40% 1 5% JOSAR 1,35 95% 36% 0,8 2,5% PABSAN 1,65 96% 35% 1,5 3% VICUNF -0,15 15% 0,3% 0,5 2,55% ALTAINVER 1,10 97% 35% 0,6 2,5% CRISMELL -0,10 10% 0,5% 0,6 2,5% Target debt ratio (D/P) is 1.2 and its cost of debt is 4.5%. Corporate tax rate is 25%, risk-free rate is 2.5% and market risk premium is 7.5%. Assume that equity illiquidity premium is 2% for CELFIN stocks.Determine:a) CELFIN's cost of capital.b) Cost of Equity of CELFINc) Cost of Equity of all six (6) companies in reference table.Several investors are in the process of organizing a new company. The investors believe that P2,600,000 will be needed to finance the new company’s operation, and they are considering three methods of raising this amount of money. Method A: All P2,600,000 would be obtained through issue of common stock Method B: P 1,300,000 would be obtained through issue of common stock and the other P1,300,000 would be obtained through issue of P100 par value, 12% preferred stock. Method C: P 1,300,000 would be obtained through issue of common stock, and the other P 1,300,000 would be obtained through issue of bonds carrying an interest ate of 12%. The investors organizing the new company are confident that it can earn P520,000 each year before interest and taxes. The tax rate will be 30%. Required: 1. Assuming that the investors are correct in their earnings estimate, compute the net income that would go to the common stockholders under each of the three financing methods listed above. 2. Using the…
- Required: (a)Assuming a rights issue of shares is made, calculate: (i)the theoretical ex-rights price of an ordinary share in Devonian plc (ii)the value of the rights for each original ordinary share. (b)Calculate the price of an ordinary share in Devonian plc in one year’s time assuming: (i)a rights issue is made (ii)a loan issue is made. Comment on your findings.Determine the following for Tram-Ropes Limited: A. Total Market value of the firm’s capital structure B. After-tax Cost of Debt C. Cost of Common Stock D. Cost of Preferred Stock E. WACCWhich of the following correctly indicates how the issue price of common stock shares would be valued when a corporation makes a follow-on issue? Market forces determine the selling price, as it is marketed by the selling group The highest expected issue price per share that can be obtained while still selling of all of the shares is selected The highest expected issue price per share that can be obtained, regardless of the selling group's ability to market the shares, is selected The market price of existing shares is used as guidance
- You are a consultant working with various companies that are considering incorporating and listing shares on a stock exchange. One of your clients asks you about the various acronyms she has been hearing in conjunction with financial analysis. Explain the following acronyms and how they measure different things but may complement each other: EPS (earnings per share), EBITDA (earnings before interest, taxes, depreciation, and amortization), and NOPAT (net operating profit after taxes).Given that firms can issue multiple share classes of common stock, which of the following is INCORRECT? Select one: a. The cash flow rights of each share class must be identical. b. All of the share classes must be publicly traded. c. Each share class can only elect directors for their share class. d. Firms cannot restrict the ownership of share classes. e. All of the above answers are incorrect about dual class firms. The LMN Corporation had Net Operating Working Capital in 2019 of $1,200 and $1,400 in 2020. LMN has EBIT of $3,000, Depreciation and Amortization of $450, and Capital Expenditures of $600. If LMN has a corporate tax rate of 21%, what is the free cash flow for the firm? Select one: a. Less than $500 b. Between $500 and $650 c. Between $650 and $800 d. Between $800 and $950 e. Greater than $950 The RQP corporation is looking to reduce their cost of capital. In calculating the return on equity for the firm, the firm uses CAPM. Which of the following events would…True or False: The following statement accurately describes how firms make decisions related to issuing new common stock. The cost of issuing new common stock is calculated the same way as the cost of raising equity capital from retained earnings. True: The cost of retained earnings and the cost of new common stock are calculated in the same manner, except that the cost of retained earnings is based on the firm’s existing common equity, while the cost of new common stock is based on the value of the firm’s share price net of its flotation cost. False: Flotation costs need to be taken into account when calculating the cost of issuing new common stock, but they do not need to be taken into account when raising capital from retained earnings. Alpha Moose Transporters is considering investing in a one-year project that requires an initial investment of $475,000. To do so, it will have to issue new common stock and will incur a flotation cost of 2.00%. At the…
