Evaluate how many shares will be repurchased and what is, Ask an Expert

Finance

Seger, Inc., is an unlevered firm with expected annual earnings before taxes of $32 million in perpetuity. The current required return on the firm's equity is 20 percent, and the firm distributes all of its earnings as dividends at the end of each year. The company has 1.5 million shares of common stock outstanding and is subject to a corporate tax rate of 35 percent. The firm is planning a recapitalization under which it will issue $35 million of perpetual 9 percent debt and use the proceeds to buy back shares.

1, Calculate the value of the company before the recapitalization plan is announced. What is the value of equity before the announcement? What is the price per share?

2. Use the APV method to calculate the company value after the recapitalization plan is announced. What is the value of equity after the announcement? What is the price per share?

3. Evaluate how many shares will be repurchased? What is the value of equity after the repurchase has been completed? What is the price per share?

4. Use the flow to equity method to calculate the value of the company's equity after the recapitalization.
Additional Requirements

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9220587

Have any Question?Write your Review or question?

Related Questions in Basic Finance

Question utilizing the concepts learned throughout the

Question: Utilizing the concepts learned throughout the course, write a Final Paper on one of the following scenarios: • Option One: You are a consultant with 10 years experience in the health care insurance industry. A ...

Discussion your initial discussion thread is due on day 3

Discussion: Your initial discussion thread is due on Day 3 (Thursday) and you have until Day 7 (Monday) to respond to your classmates. Your grade will reflect both the quality of your initial post and the depth of your r ...

Question financial ratios analysis and comparison

Question: Financial Ratios Analysis and Comparison Paper Prior to completing this assignment, review Chapter 10 and 12 in your course text. You are a mid-level manager in a health care organization and you have been aske ...

Grant technologies needs 300000 to pay its supplier grants

Grant Technologies needs $300,000 to pay its supplier. Grant's bank is offering a 210-day simple interest loan with a quoted interest rate of 11 percent and a 20 percent compensating balance requirement. Assuming there a ...

Franks is looking at a new sausage system with an installed

Franks is looking at a new sausage system with an installed cost of $375,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped ...

Market-value ratios garret industries has a priceearnings

(?Market-value ratios?) Garret Industries has a? price/earnings ratio of 19.46X a. If? Garret's earnings per share is ?$1.65?, what is the price per share of? Garret's stock? b. Using the price per share you found in par ...

You are planning to make annual deposits of 4440 into a

You are planning to make annual deposits of $4,440 into a retirement account that pays 9 percent interest compounded monthly. How large will your account balance be in 32 years? (Do not round intermediate calculations a ...

One year ago you bought a put option on 125000 euros with

One year ago, you bought a put option on 125,000 euros with an expiration date of one year. You paid a premium on the put option of $.05 per unit. The exercise price was $1.36. Assume that one year ago, the spot rate of ...

Common stock versus warrant investment tom baldwin can

Common stock versus warrant investment Tom Baldwin can invest $6,300 in the common stock or the warrants of Lexington Life Insurance. The common stock is currently selling for $30 per share. Its warrants, which provide f ...

Call optionnbspcarol krebs is considering buying 100 shares

Call option Carol Krebs is considering buying 100 shares of Sooner Products, Inc., at $62 per share. Because she has read that the firm will probably soon receive certain large orders from abroad, she expects the price ...

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

Recent Questions

Ask Basic Finance Expert