Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Accounting Expert

problem1. An all-equity business has 100 million shares outstanding selling for $20 a share. Management thinks that interest rates are unreasonably low and decides to perform a dividend recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares.

a. What is market value of firm prior to the recap? What is market value of equity?

b. Supposing the Irrelevance Proposition holds, what is market value of firm after the recap? What is the market value of equity?

c. Do equity shareholders appear to have gained or lost as a result of recap? Please describe.

d. Suppose now that the recap raises total firm cash flows, which adds $100 million to the value of the firm. Now what is the market value of the firm? What is market value of equity?

e. Do equity shareholders appear to have gained or lost as a result of the recap in this revised scenario?

Financial Accounting, Accounting

  • Category:- Financial Accounting
  • Reference No.:- M93781

Have any Question? 


Related Questions in Financial Accounting

1 which of the following costs constitutes a direct

1. Which of the following costs constitutes a direct material in an Iron Foundry? a.Welding wire b.Sand c.Iron Ore d.Accounting salaries 2. Which of the following is a variable cost? a.Property taxes b.Commissions paid t ...

Calculate the book value of a three-year-old machine that

Calculate the book value of a three-year-old machine that cost $110,000, has an estimated residual value of $11,000, and has an estimated useful life of four years. The company uses double declining-balance depreciation

Which of the following describes the environment in

Which of the following describes the environment in internal control? A company must identify its risks. B. The environment is the? "tone at the? top" of the business. C. The environment is designed to ensure that the bu ...

Firm x is being acquired by firm y for 45000 worth of firm

Firm X is being acquired by Firm Y for $45,000 worth of Firm Y stock (valued at the pre-merger current price of Y). Both firms are "all-equity" financed. The incremental value created by the merger is $3,500. Firm X has ...

Bigfoot chasers inc is working on its cash budget for july

Bigfoot Chasers Inc., is working on its cash budget for July. The budgeted beginning cash balance is $24,000. Budgeted cash receipts total $118,300 and budgeted cash disbursements total $115,000. The desired ending cash ...

Amar entered into a sales contract with the defendant

Amar entered into a sales contract with the defendant, Karinol, for the purchase of electronicwatches. The contract was silent as to shipping terms. However, the contract did have a notation in it stating that the goods ...

1what are the sections in a balance sheet and some typical

1. What are the sections in a Balance Sheet, and some typical accounts in each? 2. Does an Asset typically have a Debit or Credit balance? 3. Does a Liability typically have a Debit or Credit balance? 4. What are the sec ...

Company qantas airways limitedunder the ifrss regime assets

Company: QANTAS AIRWAYS LIMITED Under the IFRSs regime, assets cannot be booked at more than their recoverable amount. That is, at more than the greater of their net realizable value and the net present value of their fu ...

The bradford company issued 10 bonds dated january 1 with a

The Bradford Company issued 10% bonds, dated January 1, with a face amount of $75 million on January 1, 2013 to Saxton-Bose Corporation. The bonds mature on December 31, 2021 (9 years). For bonds of similar risk and matu ...

On the other hand resources such as accountants business

On the other hand, resources, such as accountants, business analysts, and I/T specialists who rely on documentation tools, will need proper training on these tools. You have been given the responsibility of familiarizing ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate