Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) Sam Corporation is financed by common stock holders and has the beta of 1.0 the firm is expected to create the level perpetual stream of earnings and dividends. Stock has the price-earnings ratio of 8 and the cost of equity of 12.5% company's stock is selling for $50 dollars. Now firm decides to repurchase half of its shares and substitute the equal value of debt. Debt is risk free, with 5% interest rate. Company is exempt from corporate income taxes. Supposing MM theory is right Compute the following items?

a) The cost of equity
b) Overall cost of capital (WACC)
c) Price/Earning ratio
d) Stock Price
e) Stock Beta

2) MM theory Proposition 1-

Executive Chalk is financed exclusively by common stock and has 25 million outstanding shares with the market price of= 10 dollars per share. It now publicizes that it is going to issue 160 million dollars of debt and use proceeds to buy back common stock.

a) By using MM theory proposition 1 how is market price of stock affected by announcement?
b) How many shares can a company buy back with 160 million dollars of debt which it issues?
c) Determine the market value of firm (equity plus debt) after changing the capital structure?
d) What is the new debt ratio after a change in structure?
e) Who (if anyone) gains or losses?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914379

Have any Question? 


Related Questions in Basic Finance

A companys dec 31st year-end balance sheet showed 72000 of

A company's Dec. 31 st year-end balance sheet showed $72,000 of inventory. The company uses the perpetual inventory system. After reviewing the company's records, the auditor noted the following items which had not been ...

Camberra freight is in charge of transporting auto parts

Camberra Freight is in charge of transporting auto parts for an US car manufacturer in Australia. Every week a tractor and one or two trailers move from the port of Melbourne to a warehouse located 430 km away. A tractor ...

To qualify as a true experiment a research study requires

To qualify as a true experiment, a research study requires the manipulation of at least one variable. The fact that some variables cannot (or should not) be manipulated limits the topics that can be investigated easily w ...

State and explain two reasons why firms hedge a major bread

State and explain two reasons why firms hedge? A major bread maker is planning to purchase wheat in the near future. Identify and explain the appropriate hedging strategy? Explain how the implied repo rate on a spread tr ...

1 define a multinational corporation mnc what additional

1. Define a multinational corporation (MNC). What additional factors must be considered by the manager of an MNC that a manager of a purely domestic firm is not forced to face? 2. Who are the major players in foreign cur ...

1 financial ratios are used extensively in annual reports

1. Financial ratios are used extensively in annual reports to interpret and explain financial statements. Comment. 2. List the sections of annual reports where ratios are most frequently located, in order of use. 3. Acco ...

Why should capital budgeting for projects in an overseas

Why should capital budgeting for projects in an overseas subsidiary be assessed from the parent's perspective rather than just the subsidiary's cash flow perspective? What additional factors deserve consideration in mult ...

Assignmentcareers in finance finance is an exciting field

Assignment Careers in Finance Finance is an exciting field in need of intelligent, skilled people. The job opportunities range from corporate finance; financial planning; investment banking; insurance; and real estate fr ...

Assignment pricing decisionsthis assignment will assess

Assignment: Pricing Decisions This assignment will assess competency 4. Develop a professional sales training and motivation program for an organization. Directions View the Chapter 19 - Pricing Concepts video. http://ww ...

Question 1 the primary purpose of fundamental stock

Question 1. The primary purpose of fundamental stock valuation is to _____. eliminate stocks of those companies that are potential losers from the portfolio identify for purchase those companies that are fundamentally un ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen