Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 7PS
a)
Summary Introduction
To determine: Total number of new shares.
b)
Summary Introduction
To determine: Amount of new investment,
c)
Summary Introduction
To determine: Value of company after the issue.
d)
Summary Introduction
To determine: Total number of shares after issue.
e)
Summary Introduction
To determine: Stock price after issue.
f)
Summary Introduction
To determine: The value of opportunity.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Alif company’s total investment in assets is OMR 2,000,000. It has 200,000 shares of OMR 10 each. Its expected Rate of Return on Investment is 20% and Cost of Capital is 12%. The company has a policy of retaining 25% of its profits. Determine the value of the firm using Gordon’s Model.
Question No. 2
Summer LLC has 100,000 outstanding shares of OMR 10 each. The company earns at a rate of 25% on its investments and retains 40% of earnings as a policy. If Cost of Capital is 15%, calculate price of the share according to Gordon’s Model. The company has total investment of around OMR 1500,000 in assets.
If payout ratio changes to 60% how will share price change? Also comment on the optimal dividend policy for Summer LLC as per Gordon’s Model?
Question No. 3
Yasir Ltd. has 1,00,000 equity shares of OMR 10 each fully paid. The company expects its earnings at OMR12,00,000 and Cost of Capital at 10% for the next financial year.
Using Walter’s Model, what dividend policy would you recommend…
Deli Bhd introduces a new product line to expand its market in gaining wide market shares. Deli Bhd has spent RM1,500,000 in capital investment and RM460,000 in working capital investment. It has decided that 10% of its working capital investment is considered buffer working capital. The firm's operating profits of RM650,000 are subjected to the 10% interest on long-term financing, 6% interest on short-term financing, and 24% tax rate. The capital structure is 40% equity, 50% long-term debt, and 10% short-term debt.
Required:
a. Analyse the financing strategy adopted by the firm (show all workings).
The Manx Company was recently formed to manufacture a new product. It has the following capital structure in market value terms:
Debentures
$ 6,000,000
Preferred stock
$2,000,000
Common stock(320,000 shares)
$8,000,000
Total
$16,000,000
The company has a marginal tax rate of 40 percent. A study of publicly held companies in this line of business suggests that the required return on equity is about 17 percent. (The CAPM approach was used to determine the required rate of return.) The Manx Company’s debt is currently yielding 13 percent, and its preferred stock is yielding 12 percent. Compute the firm’s present weighted average cost of capital.
Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
Knowledge Booster
Similar questions
- HungHom Inc. has 250,000 shares outstanding at $60 per share. For expansion of its overseas plant facilities, the company has decided to raise $5,000,000 by a rights offering with a subscription price of $50. 2-1. How many new shares are offered to raise the required funds? Answer: Number of new shares = ____________ 2-2. How many rights are needed to buy a new share via rights offering? Answer: Number of rights needed = _________rights per share 2-3. What will the price per share be if all rights are exercised? Use two decimal points rounded up (e.g., 79.54). Answer: Price per share = $_____________ 2-4. Assuming everything else is constant, what is the value of the right? Use two decimal points rounded up (e.g., 79.54). Answer: Value of the right=_____________$arrow_forwardThe Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Please answer: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is…arrow_forwardThe Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required:a) How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is 12%.…arrow_forward
- The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share. Required: a) How much dividend Giant Machinery can pay its shareholders this year and what is dividend pay-out ratio of the company? Assume the Residual Dividend pay-out Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is…arrow_forwardThe Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will requires aninvestment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required:a) How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend.Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidationplan due to the severe contraction of operation due to corona virus. The company plans to paytotal dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend.The required rate of return for shareholders is 12%.…arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning