25 The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $7 per share. Common stock (30,000 shares at $1 par) Capital in excess of par Retained earnings Total equity. The firm intends to first declare a 15 percent stock dividend and then pay a 20-cent cash dividend (which also causes a reduction of retained earnings). Show the capital section of the balance sheet after the first transaction and then after the second transaction. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Western Pipe Co. After Stock Dividend Common stock Capital in excess of par Retained earnings Total equity Western Pipe Co. After Cash Dividend Common stock Capital in excess of par Retained earnings Total equity $ 30,000 30,000 150,000 $ 210,000 $ 0

25 The Western Pipe Company has the following capital section in its balance sheet. Its stock is currently selling for $7 per share. Common stock (30,000 shares at $1 par) Capital in excess of par Retained earnings Total equity. The firm intends to first declare a 15 percent stock dividend and then pay a 20-cent cash dividend (which also causes a reduction of retained earnings). Show the capital section of the balance sheet after the first transaction and then after the second transaction. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Western Pipe Co. After Stock Dividend Common stock Capital in excess of par Retained earnings Total equity Western Pipe Co. After Cash Dividend Common stock Capital in excess of par Retained earnings Total equity $ 30,000 30,000 150,000 $ 210,000 $ 0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown in the following table. Assets Liabilities & Equity Cash$100,000 Fixed assets900,000 Equity$1,000,000 Total $1,000,000 Total$1,000,000 Required:(a.) What price is Payout stock selling for today?(b.) What price will it sell for tomorrow? Ignore taxes.(c.) Suppose that instead of paying a dividend, Payout Corp. announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase proposal is announced?(d.) Suppose that the stock is repurchased immediately after the announcement. What would be the stock price after the repurchase?
The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $.50 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown in the following table. Liabilities & Equity Assets $100,000 Cash Fixed $1,000,000 $1,000,000 assets 900,000 Equity Total $1,000,000 Total Required: (a.) (b.) (c.) What price is Payout stock selling for today? What price will it sell for tomorrow? Ignore taxes. Suppose that instead of paying a dividend, Payout Corp. announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase proposal is announced? Suppose that the stock is repurchased immediately after the announcement. What would be the stock price after the repurchase? (d.)
Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information, answer the following questions All computations must be done and shown in detail : a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think of borrowing more) b) What is the level of EBIT at which shareholders will be indifferent between the two capital structures, the one with a D/E = 0.5/1 and the other with a D/E of 1?
Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 per share. The current weighted average cost of capital is 7%. It also carries long-term debt of $200,000 at an interest rate of 7% p.a. One of the agenda items in its AGM is to switch to a D/E of 1. Based on this information,answer the following questions: a) What will be the number of outstanding shares for Jimmy Shoes Inc. if it switches to a D/E ratio of 1? (Hint: Current Debt = $200,000, current equity = 10,000 shares x $40 = $400,000, current D/E = 2/4 = 0.5/1. If the firm seeks to increase its D/E to 1, it can think ofborrowing more)b) What is the level of EBIT at which shareholders will be indifferent between the two capital structures, the one with a D/E = 0.5/1 and the other with a D/E of 1?
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year,…
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year,…
(This question has three parts.) Von Bora Corporation is expected pay a dividend of $2.07 per share at the end of this year and a $2.34 per share at the end of the second year. Immediately after Von Bora pays the $2.34 per share dividend at the end of the second year, you expect Von Bora's stock price to be $22.00 per share. Von Bora's cost of equity capital is 10.0%. Question A: What is the highest price that you would be willing to pay today for a share of Von Bora stock you plan to hold the stock for two years? $ per share (round to two decimal places) Question B: What is the highest price that you would be willing to pay today for a share of Von Bora stock if you plan to hold the stock for five years? $ per share (round to two decimal places) Question C: At the end of the second year (e.g., at time t=2), immediately before Von Bora pays the $2.34 per share dividend, at what price would you expect shares of Von Bora's stock to be selling? |per share (round to two decimal places)
(This question has three parts.) Von Bora Corporation is expected pay a dividend of $1.97 per share at the end of this year and a $2.35 per share at the end of the second year. Immediately after Von Bora pays the $2.35 per share dividend at the end of the second year, you expect Von Bora's stock price to be $22.00 per share. Von Bora's cost of equity capital is 12.0% (...) Question A: What is the highest price that you would be willing to pay today for a share of Von Bora stock if you plan to hold the stock for two years? Sper share (round to two decimal places) Question B: What is the highest price that you would be willing to pay today for a share of Von Bora stock if you plan to hold the stock for five years? Sper share (round to two decimal places) Question C: > At the end of the second year (e.g., at time t=2), immediately before Von Bora pays the $2.35 per share dividend, at what price would you expect shares of Von Bora's stock to be selling? Sper share (round to two decimal…
PLEASE START FROM SECTION B Use the following information about SV Inc. to calculate the company’s Cost of Capital. The stock of SV Inc. sells for $50, and last year’s dividend was $2.10. A flotation cost of 10% would be required to issue new common stock. SVs’ preferred stock pays a dividend of $3.30 per share, and new preferred could be sold at a price to net the company $30 per share. Security analysts are projecting that the common dividend will grow at a rate of 7% a year. The firm can issue additional long-term debt at an interest rate (or a before-tax cost) of 10%, and its marginal tax rate is 35%. The market risk premium is 6%, the risk-free rate is 6.5%, and Supreme Ventures’ beta is 0.83. In its cost-of-capital calculations, SV Inc. uses a target capital structure with 45% debt, 5% preferred stock, and 50% common equity. REQUIRED: Section A Calculate the cost of each capital component: the after-tax cost of debt the cost of preferred stock (including flotation costs)…
(This question has three parts.) Von Bora Corporation is expected pay a dividend of $1.99 per share at the end of this year and a $2.37 per share at the end of the second year. Immediately after Von Bora pays the $2.37 per share dividend at the end of the second year, you expect Von Bora's stock price to be $22.00 per share. Von Bora's cost of equity capital is 11.0%. Question A: What is the highest price that you would be willing to pay today for a share of Von Bora stock if you plan to hold the stock for two years? $4 per share (round to two decimal places) Question B: What is the highest price that you would be willing to pay today for a share of Von Bora stock if you plan to hold the stock for five years? 2$ per share (round to two decimal places) At the end of the second year (e.g., at time t=2), immediately before Von Bora pays the $2.37 per share dividend, at what price would you expect shares of Von Bora's stock to be selling? Question C: $ per share (round to two decimal…
Tucker’s National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker’s is going to use all of its excess cash to repurchase sharesof stock. What will the stock price per share be after the stockrepurchase is completed?
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,260 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,260 worth of stock. Ignore taxes. Liabilities and Assets Equity $ 7,200 Fixed assets 29,300 Debt $11,300 25,200 Cash Equity a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $25,500 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $25,500 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $25,500 a year, find the price-earnings ratio if the…

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