X Corp needs 20M in its project. Estimated earnings are 20M.Par value of share is 400 per share. Which of the three capital structures will give the highest MPPS (market price per share)? Int rate CS equity 20M 16M ?? Debt ratio 0% 20% 30% Borrowings 0 4M ?? 8% 9% 9.5% PE ratio 14 13 12.5
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Which of the three capital structures will give the highest MPPS (market price per share)?
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- Using the FTE approach, find the value of the firm: • UCF-53.9 . . . • kel=14.3% Keu 15.8% T-40% . Debt-1,427 kd=4.5% WACC 12.6% . Assume the FCF is perpetual.A company needs ghc1000 to finance its activities. The firm can finance this expenditure either by bonds or equity. Interest rate on bonds is 10%. The company can earn ghe 160 in good years and ghc80 in bad years. Assuming the firm faces one-quarter probability of good years; What will be the stream of returns on both bonds and equity if the company chooses the following financing options? i. a. 100% equity financing ii. 50% equity financing iii. 20% equity financing iv. 0% equity financing Estimate the equity risk associated with each option in (a) As an investor who wants to purchase a share in the company, which financing option will make you purchase the stock. Why? b. C.A company needed ghc 1000 to finance its activities. The firm can financed this expenditure either by bonds or equity. Interest rate on bonds is 10%. The company can earn ghc 160 in good years and ghc80 in bad years. Assuming the firm faces equal probability of good and bad years; i What will be the stream of returns on both bonds and equity if the company chooses the following financing options a 100% equity financing b 50% equity financing c 20% equity financing d 0% equity financing ii Estimate the equity risk associated with each option in (i) iii As an investor who wants to purchase a share in the company, which financing option will make you purchase the stock. Why????
- A firm has target debt-equity ratio of 0.60. The flotation cost for equity is 5% and the flotation cost for debt is 3%. The firm needs $10,000,000 investment to undertake a project. How much should the firm raise to account for flotation costs and the initial investment need of the project? O $10,395,010 O $10,416,667 $11,000,821 $10,572,912 O $10,443,864A firm has 4000m in balance sheet debt (book value is equal to market value in this case) and 1000m in capitalized leases. Market value of equity is 10000m. You can use book value of debt to approximate its market value. If you were to use this information in the calculation of WACC, what is Wd? O 40.00% O 28.57% O 33.33% O 50.00%A firm has 65% probability of being worth $100 million and a 35% probability of being worth $130 million. There is one bond outstanding that promises to pay $100 million at an interest rate of 7%. The cost of capital for the firmʹs projects is 9%. What is the promised return on the bond? Group of answer choices a.Not determinable b. 10.8% c.6.4% d. 7.0%
- 6. Company cost of capital (S9.2) Nero Violins has the following capital structure: Total Market Value ($ millions) $100 Security Debt Preferred stock Common stock Beta 0 0.20 1.20 40 299 a. What is the firm's asset beta? (Hint: What is the beta of a portfolio of all the firm's securities?) b. Assume that the CAPM is correct. What discount rate should Nero set for investments that expand the scale of its operations without changing its asset beta? Assume a risk-free interest rate of 5% and a market risk premium of 6%. Ignore taxes.XYZ Ltd. Decides to use two financial plans and they need Rs. 50000 for investment. Plan A Plan B Particular 10% Debt 40000 10000 Equity Share@ 10 each Total insestment needed 10000 40000 50000 50000 4000 1000 Number of Equity Share Theearnings before income and tax are assumed at Rs. Rs. 5,000 and Rs. 12,500. Tax rate is 50%. Calculate the EPS.Q3) Tanten Company has 200% debt and 80% equity. The borrowing rate is 12%. A. If you own 4% of the stock of Abacus, what is your dollar return if the company has net operating income of $750,000 and the over all capitalization rate , Ko, is 15%? Value of the firm is 500,000 B. What is the implied required rate of return on equity? C. What is the market value of stock and the return of stock? D. What is the market value of debt?
- What is the EPS in the following case? Debt : Equity ratio = 3:1 Total Capital employed = 20,00,000 Interest rate for debt = 8%, Tax rate = 40% Price per share = 100 EBIT = 4,00,000 a. 35.74 b. 33.6 c. 35.2 d. 31.85Based on the information from Question 42 ~ 44, what would be the company’s new cost of equity if it were to change its capital structure to 50% debt and 50% equity (D/S =1.0) using the CAPM? 13.8% 15.6% 16.8% 18.5%A firm has 65% probability of being worth $100 million and a 35% probability of being worth $130 million. There is one bond outstanding that promises to pay $100 million at an interest rate of 7%. The cost of capital for the firmʹs projects is 9%. What is the current value of the firmʹs debt? a.91.7 b.93.5 c.100.0 d.none are correct
