Chapter MB, Problem 11M

You own stocks in an oil palm plantation company, and you read in the financial press that a recent bond offering has raised the firm’s debt-equity ratio from 30 percent to 55 percent. Discuss how this change would affect your required rate of return on the common stock of the company. Provide your justification(s) to support your views in the answer space provided.

Koko Services, Inc., has just declared a 2-for-1 stock split. The company’s pre-split common stockholders’ equity was as follows: If the pre-split price of common stock was $28.50, what will the new common equity section of the balance sheet look like? Show all of your calculation work and label all of your work so I can follow your calculation process.

The Findlay Computer Company has the following selected financial results. The company is considering a capital restructuring to increase leverage from its present level of 10% of capital.Show all of your calculation work and label all of your work so I can follow your calculation process.   1.  Calculate Findlay’s ROE and EPS under its current capital structure. 2. Restate the financial statement line items shown, the number of shares outstanding, ROE, and EPS if Findlay borrows money and uses it to retire stock until its capital structure is 40% debt assuming EBIT remains unchanged and the stock continues to sell at its book value.  (Develop the second column of the chart shown.)Recalculate same figures assuming Findlay continues to restructure until its capital structure is 75% debt.  (Develop the third column of the chart.)    Current Capital Structure                    10% Debt        40% Debt        75% DebtDebt    $10,000         $40,000         $75,000 Equity    90,000…

You are valuing Estelle Company, a private firm that manufactures shop tools, and you have identified several comparable firms that are publicly owned from which to calculate an estimated price-to-earnings multiple to use in your valuation. One of the comparable firms, Comp A, has a market value per share of $53.40, earnings per share for last year of $4.20 per share, a dividend for last year that was $1.10 per share, forecast earnings per share for the next year of $7.05, and a dividend that is expected to be unchanged. The forward price-to-earnings multiple for Comp A is:     a. 17.2   b. 12.7   c. 9.0   d. 7.6   e. None of the above.

You have been hired as a financial analyst in a consulting firm which primary deals with financial institutions to provide services related to mergers and acquisitions of businesses.As your first project you have been teamed up with a division in your company which specialize in investment appraisals and currently have following tasks in hand: ⦁ Fintech corporation (a long term client) need advice based on higher dividend payout as it is considering to invest in stocks and have following couple of options: RUBIK LLC : Share is currently trading at $56 with expected growth rate of 6% , whereas investor’s required rate of return is 9 % . WOODWORKS LLC : Share is currently trading at $23 with expected growth rate of 2.5% , whereas investor’s required rate of return is 9 % (same as above). You are expected to calculate dividend per share by Divided Growth Model for RUBIK and WOODWORKS.

You have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT.   National Property Trust Panel A. Operating Statement Summary Net revenue $ 101,000,000 Less:   Operating expenses 40,400,000 Depreciation and amortization 23,000,000 General and administrative expenses 6,100,000 Management expense 3,100,000 Income from operations 28,400,000 Less:   Interest expense* 6,400,000 Net income (loss) $ 22,000,000 *At 8% interest only.   Panel B. Balance Sheet Summary Assets   Cash $ 51,600,000 Rents receivable 2,600,000 Properties @ cost 710,000,000 Less: Accumulated depreciation…

You have been presented with the following set of financial statements for National Property Trust, a REIT that is about to make an initial stock offering to the public. This REIT specializes in the acquisition and management of warehouses. Your firm, Blue Street Advisors, is an investment management company that is considering the purchase of National Property Trust shares. You have been asked to prepare a financial analysis of the REIT.   National Property Trust Panel A. Operating Statement Summary Net revenue $ 112,000,000 Less:   Operating expenses 44,800,000 Depreciation and amortization 34,000,000 General and administrative expenses 7,200,000 Management expense 4,200,000 Income from operations 21,800,000 Less:   Interest expense* 6,400,000 Net income (loss) $ 15,400,000 *At 8% interest only.   Panel B. Balance Sheet Summary Assets   Cash $ 52,700,000 Rents receivable 3,700,000 Properties @ cost 820,000,000 Less: Accumulated depreciation…

The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average returns over the five-year period.  (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index.   Also, you cannot calculate the rate of return for 2015 because you do not have 2014 data.)

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…