The management of a conservative firm has adopted a policy of never letting debt exceed 40 percent of total financing. The firm will earn $10,000,000 but distribute 50 percent in dividends, so the firm wil have $5,000,000 to add to retained earnings. Currently the price of the stock is $40; the company Days a 54 per share dividend, which is expected to grow annualy at 9 percent. If the compary sells new shares, the oet to the company will be $36. Given this Information, what is the
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- The management of a conservative firm has adopted a policy of never letting debt exceed 30 percent of total financing. The firm will earn $20,000,000 but distribute 30 percent in dividends, so the firm will have $14,000,000 to add to retained earnings. Currently the price of the stock is $60; the company pays a $5 per share dividend, which is expected to grow annually at 9 percent. If the company sells new shares, the net to the company will be $55. Given this information, what is the cost of retained earnings? Round your answer to one decimal place. % cost of new common stock? Round your answer to one decimal place. % The rate of interest on the firm’s long-term debt is 9 percent and the firm is in the 32 percent income tax bracket. If the firm issues more than $2,100,000, the interest rate will rise to 10 percent. Given this information, what is the cost of debt? Round your answer to one decimal place. % cost of debt in excess of $2,100,000? Round your answer to one…The management of a conservative firm has adopted a policy of neverletting debt exceed 30 percent of total financing. The firm will earn$10,000,000 but distribute 40 percent in dividends, so the firm will have$6,000,000 to add to retained earnings. Currently the price of the stockis $50; the company pays a $2 per share dividend, which is expected togrow annually at 10 percent. If the company sells new shares, the net tothe company will be $48. Given this information, what is the: a.) cost of retained earnings; The rate of interest on the firm’s long-term debt is 10 percent and thefirm is in the 32 percent income tax bracket. If the firm issues more than$2,400,000, the interest rate will rise to 11 percent. Given this information,what is the: b.) cost of debt in excess of $2,400,000?The management of a conservative firm has adopted a policy of neverletting debt exceed 30 percent of total financing. The firm will earn$10,000,000 but distribute 40 percent in dividends, so the firm will have$6,000,000 to add to retained earnings. Currently the price of the stockis $50; the company pays a $2 per share dividend, which is expected togrow annually at 10 percent. If the company sells new shares, the net tothe company will be $48. Given this information, what is the: a.) cost of new common stock? The rate of interest on the firm’s long-term debt is 10 percent and thefirm is in the 32 percent income tax bracket. If the firm issues more than$2,400,000, the interest rate will rise to 11 percent. Given this information,what is the: b.) cost of debt?
- The management of a conservative firm has adopted a policy of never letting debt exceed 40 percent of total financing. The firm will earn $14,000,000 but distribute 40 percent in dividends, so the firm will have $8,400,000 to add to retained earnings. Currently the price of the stock is $50; the company pays a $5 per share dividend, which is expected to grow annually at 11 percent. If the company sells new shares, the net to the company will be $45. Given this information, what is the cost of retained earnings? Round your answer to one decimal place. % cost of new common stock? Round your answer to one decimal place. % The rate of interest on the firm’s long-term debt is 11 percent and the firm is in the 32 percent income tax bracket. If the firm issues more than $2,900,000, the interest rate will rise to 12 percent. Given this information, what is the cost of debt? Round your answer to one decimal place. % cost of debt in excess of $2,900,000? Round your answer to one…The management of a conservative firm has adopted a policy of never letting debt exceed 40 percent of total financing. The firm will earn $14,000,000 but distribute 40 percent in dividends, so the firm will have $8,400,000 to add to retained earnings. Currently the price of the stock is $50; the company pays a $5 per share dividend, which is expected to grow annually at 11 percent. If the company sells new shares, the net to the company will be $45. Given this information, what is the cost of retained earnings? Round your answer to one decimal place. % cost of new common stock? Round your answer to one decimal place. % The rate of interest on the firm’s long-term debt is 11 percent and the firm is in the 32 percent income tax bracket. If the firm issues more than $2,900,000, the interest rate will rise to 12 percent. Given this information, what is the cost of debt? Round your answer to one decimal place. % cost of debt in excess of $2,900,000? Round your answer to one…Sunland Inc.’s common shares currently sell for $35 each. The firm’s management believes that its shares should really sell for $42 each. The firm just paid an annual dividend of $2 per share and management expects those dividends to increase by 5 percent per year forever (and this is common knowledge to the market). - What does management believe is the correct cost of common equity for the firm?
- 1)An all-equity firm has 9 million shares outstanding and each share is priced at $167. The firm announces that it will be issuing $260 million in permanent debt that they will use to repurchase shares. The market hears this news and assimilates the information immediately. What is the new share price? Assume the firm's tax rate is 21% and there are no financial distress costs. 2)A CEO, working on behalf of the equityholders, is choosing between two mutually-exclusive projects: A and B. A has a 100% probability of earning $150 million. B has an 80% probability of earning $200 million and a 20% probability of earning $0. Ignore discounting. The firm has debt to pay of $100 million. Solve for which project has the highest expected value for the equityholders. What is that value? 3) Your firm is evaluating a project that will generate the following cash flows next year with the following probabilities: Cash Flow at t=1 Probability Good Case $600M 0.75 Bad Case $200M 0.25 You…Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing 6 percent) and 50,000 shares of stock selling at $20.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 50,000 shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain $500,000. What is the change in the firm's EPS from this change in capital structure? Multiple Choice increase EPS by $0.72 decrease EPS by $1.92 decrease EPS by $1.68Consider a firm with an EBIT of $500,000. The firm finances its assets with $2,000,000 debt (costing 6 percent) and 50,000 shares of stock selling at $20.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 50,000 shares of stock. The firm is in the 40 percent tax bracket. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain $500,000. What is the change in the firm's EPS from this change in capital structure?
- The price per share of an unlevered firm is $5. EBIT is projected to be $50,000. There are no taxes. The board of the firm is considering a capital restructuring where they would repur-chase outstanding stock by borrowing $5,000 at a 10% rate. There are 10,000 shares currently outstanding. a) Assuming that all profits are paid out as dividends to shareholders, what is the EPS or distributions per share back to shareholders if the firm remains unlevered and if the firmrestructures? b) If you own 10 shares of the unlevered firm but prefer the distributions of the levered firm,how could you replicate the payoff of the levered firm yourself? (Provide details on how muchto borrow and how many units of stocks to purchase. Assume that stocks can be purchased in incremental amounts) c) Now suppose the firm levers up and you have a strong preference for the safer unleveredreturns. Again, with our 10 shares, how can you…A firm's target structure is 40 percent debt and 60 percent common equity. The firm's common stock has just paid a dividend of $2.20 per share. It is expected that the dividends of this firm will grow at a rate of 5 percent per year in the future. The current price of the common shares is $20. If new common shares are issued, it will be necessary to incur flotation costs of $2 per share . The firm's bonds have a par value of $1,000; a coupon rate of 6 percent paid annually; 12 years to maturity; and currently sell for $980 each. Flotation costs on similar new bonds would be 3 percent of the par value on an after-tax basis. The firm is considering a project with an investment of $10 million. The firm doesn't have enough cash for the investment and will have to issue common shares to raise the $10 million What is the required rate of return on this investment if the firm's tax rate is 40 percent and the project has the same level of risk as the firm?Assume that Midco Industries wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $15 per share and no debt. Midco has had consistently stable earnings and pays a 35% tax rate. Management plans to borrow $100 million on a permanent basis, and they will only wishes to repurchase $70 million worth of its shares. What is the lowest price it could offer and expect shareholders to tender their shares? A. $15.25 B. $16.06 C. $15.67 D. $15
