my 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. 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) What is the level of EBIT at which shar

my 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. 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) What is the level of EBIT at which shar

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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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 question: 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?
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 of borrowing more)
Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 pershare. The current weighted average cost of capital is 7%. It also carrieslong-term debt of $200,000 at an interest rate of 7% p.a. One of the agendaitems 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. ifit 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 indifferentbetween the two capital structures, the one with a D/E = 0.5/1 and theother with a D/E of 1?
Jimmy Shoes Inc. has 10,000 shares outstanding with a stock price of $40 pershare. The current weighted average cost of capital is 7%. It also carrieslong-term debt of $200,000 at an interest rate of 7% p.a. One of the agendaitems 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. ifit 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 indifferentbetween the two capital structures, the one with a D/E = 0.5/1 and theother with a D/E of 1?
Le Comp Ltd. is all equity financed with 18,000 shares outstanding and each share sells for $22. The EBIT of the company is $50,000. The company is debating of converting into a 40% debt capital structure, with 6% interest per annum. The cost of capital is currently 10%. Ignore taxes. You are required to answer the following: (a) What is the current market value of the company? (b) What is the market value of debt in the proposed debt capital structure? (c) How many shares must be repurchased in the proposed levered company?
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,…
A company is all equity financed with 18,000 shares outstanding and each share sells for$22.The company is debating of converting into a 40% debt capital structure, with 6%interest per annum. The cost of capital is currently 10%. Ignore taxes.You are required to answer the following:(a) What is the current market value of the company?(b) What is the market value of debt in the proposed debt capital structure?(c) How many shares must be repurchased in the proposed levered company?(d) What is the cost of equity in the levered company?
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,…
Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1,000,000 in debt outstanding. The current cost of equity is 9% and the current cost of debt is 6%. The firm is considering issuing another $3 of debt and using the proceeds of the debt issue to repurchase shares (a pur capital structure change). It is estimated that the cost of the new debt will be 7% and that the cost of equity will rise to 10% with the additional debt. The marginal tax rate is 34% I found the current market value of the firm V= $11,560,000 What will the firm's market value be after the announcement of the new debt issue? (Note that total market value of Debt will be Dsub0 + Dsub1 and the interest costs that must be subtracted from EBIT when calculating the market value of equity must be calculated in two parts and then added. Help!!!
FedEx Corporation (FDX) has a current share price of $157.62 and is expected to have earnings per share (EPS) next year of $11.32 per share. Analysts expect that FedEx's closest competitor, United Parcel Service, Inc. (UPS), will have earnings next year of $8.37 per share. FedEx's cost of capital is 11%. What is your current estimate of the value of one share of UPS stock using the method of comparables? OA. $213.17 OB. $76.09 OC. $13.92 OD. $116.54 OE. $154.67 OF. None of the above is withing $0.35 of the value of one share of UPS stock.