You own 25% of Duke Senior, Ltd. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow £1.5 million to repurchase your 1,000 shares back. What is the total value of this firm today if you ignore taxes? a £5.4 million b. £5.7 million c. £6.0 million
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You own 25% of Duke Senior, Ltd. You have decided to retire and want to sell your shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow £1.5 million to repurchase your 1,000 shares back. What is the total value of this firm today if you ignore taxes? a £5.4 million b. £5.7 million c. £6.0 million
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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?Galt Industries has 50 million shares outstanding and a market capitalization of $1.25 billion. It also has $750 million in debt outstanding. Galt Industries has decided to delever the firm by issuing new equity and completely repaying all the outstanding debt. Assume perfect capital markets. Suppose you are a shareholder in Galt industries holding 100 shares, and you disagree with this decision to delever the firm. You can undo the effect of this decision by: borrowing $1500 and buying 60 shares of stock. selling 40 shares of stock and lending $1000. borrowing $1000 and buying 40 shares of stock. selling 32 shares of stock and lending $800.a) Jetpack Ltd. has an all equity capital structure. It has total assets worth $10 million, 10,000 outstanding shares and an EBIT of $750,000. It is contemplating a move to incorporate debt to the tune of 25% of itsasset value and can arrange the borrowing at a 5% p.a. interest rate. Wendy, a shareholder in the company, has 700 shares.i) What is Wendy's current percentage return if Jetpack follows a 100% dividend pay-out policy and there are no taxes?ii) If Wendy prefers the company to remain all equity financed, show how she could unlever her position to maintain the same percentage return as she is earning currently?b) Companies X and Y both wish to raise $100 million 10-year loans. Company X wishes to borrow at a fixed rate of interest as it wants to have a certainty about its future interest liabilities, while company Y wishes to borrow at a floating rate because its treasurer believes that interest rates are likely to fall in the future. Company X has been offered a fixed interest…
- Jetpack Ltd. has an all equity capital structure. It has total assets worth $10 million, 10,000 outstanding shares and an EBIT of $750,000. It is contemplating a move to incorporate debt to the tune of 25% of its asset value and can arrange the borrowing at a 5% p.a. interest rate. Wendy, a shareholder in the company, has 700 shares. i) What is Wendy's current percentage return if Jetpack follows a 100% dividend pay-out policy and there are no taxes? ii) If Wendy prefers the company to remain all equity financed, show how she could unlever her position to maintain the same percentage return as she is earning currently?Jetpack Ltd. has an all equity capital structure. It has total assets worth $10 million, 10,000 outstanding shares and an EBIT of $750,000. It is contemplating a move to incorporate debt to the tune of 25% of its asset value and can arrange the borrowing at a 5% p.a. interest rate. Wendy, a shareholder in the company, has 700 shares. i) What is Wendy's current percentage return if Jetpack follows a 100% dividend pay-out policy and there are no taxes? ii) If Wendy prefers the company to remain all equity financed, show how she could unlever her position to maintain the same percentage return as she is earning currently? *Show manual workings. No Excel. You can type calculator inputs and outputs.You own all the equity of R.G.C. I Ltd. The company has no debt. The company’s annual cash flow is GH¢900,000 before interest and taxes. The company tax rate is 35%. You have the option to exchange 1/2 of your equity position for 5% bonds with a face value of GH¢2,000,000. What is the total cash flow to the investors? What is the value of the unlevered firm? What is the value of the levered firm? Assuming a bankruptcy cost of GH¢8000, what is the value of the levered firm after considering bankruptcy cost?
- BTC has 15M shares in an all-equity firm, at a price of $13 per share. The firm announced that they will borrow $100M to buy back shares (using the full amount of debt). They will keep this debt permanently. Upon announcement the share price increases to $16 per share. The corporate tax rate is 25%, taxes and financial distress costs are the only relevant market imperfections. What is the present value of the financial distress costs？Hawar International is a shipping firm with a current share price of $4.50 and 10 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $10 million and repurchasing shares. a. With perfect capital markets, what will the share price be after this announcement? b. Suppose that Hawar pays a corporate tax rate of 40%, and that shareholders expect the change in debt to be permanent. If the only imperfection is corporate taxes, what will the share price be after this announcement? c. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.55 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? Question content area bottom Part 1 a. With perfect capital markets, what will the share price be after this announcement? With perfect capital markets, the share price will be $enter your response here per shareCliff Corp (CC) has assets of $300 million including $25 million in cash. CC has 1 million share of stock outstanding and $70 million of debt. Assume capital markets are perfect. What is CC’s current debt-to-equity ratio? What is CC’s current stock price? If CC distributes $18 million in dividends, then what is the new ex- dividend share price? If instead of paying the dividend CC repurchases $18 million of stock, then what will be the new share price? What is the new debt-to-equity ratio after the payout?
- Good Values, Inc., is all-equity-financed. The total market value of the firm currently is $100,000, and there are 2,000 shares outstanding. The firm has declared a $5 per share dividend. Now suppose that instead of paying a dividend Good Values plans to repurchase $10,000 worth of stock. Ignore taxes. a. What will be the stock price before and after the repurchase? b. Suppose an investor who holds 200 shares sells 20 of her shares back to the firm. If there are no taxes on dividends or capital gains, show that she should be indifferent between the repurchase and the dividend. c. Show that if dividends are taxed at 30% and capital gains are not taxed, the value of the firm is higher if it pursues the share repurchase instead of the dividend.Company A and Company B are identical firms in every way except for their capital structure (Company B uses perpetual debt). The EBIT for both companies is expected to be $20 million forever. The shares of Company A are worth $100 million, and the shares of Company B are worth $50 million. The interest rate is 5 per cent. Michael owns $2 million of Company B’s shares. Please answer the following questions, ignoring taxes. What is rate of return for Company B? Show how Michael could generate the same cash flow and rate of return by investing in company A and using home-made leverage. What is the cost of capital for both companies? What principle does your answer illustrate?Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (d) What is the cost of equity in the levered company? (e) What is the cost of capital of the levered company?
