Firm C will take on a new project that costs $1,000,000 and will increase EPS from 1.8 to 2. The project will be funded with a new equity issue and will have the same PE ratio as the firm. The current number of shares outstanding is 4,000,000 shares at $20 per share. Calculate the Market Value of the Firm if the project is undertaken. $90,000,000 $22.22 $80,000,000 $24.44 $70,000,000
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- ix Browne, Incorporated estimates that its break point (BPRE) is $12 million, and its WACC is 9.8 percent if common equity comes from retained earnings. However, if the company issues new stock to raise new common equity, it estimates that its WACC will rise to 10.8 percent. The company is considering the following equal-life investment projects: Project A B с D Size $4 million 6 million 3 million 5 million What is the firm's optimal capital budget? a. $10 million b. $13 million c. $15 million d. $18 million e. None of the above IRR 11.4% 11.9 10.1 10.3An unlevered firm has a cost of equity capital of 10%. The firm will invest in a project that will give a one- time cash flow of $33,000 after one year. A levered firm invests in the same project as the unlevered firm. What is the value of the levered value with perfect capital markets? $24,000 $30,000 $36,600 $36.000A firm has 10 million shares outstanding with a current market price of P20 per share. There is one investment project available to the firm. The initial investment of the project is P20 million, and the NPV of the project is P10 million. What will be the firm’s stock price if capital markets fully reflect the value of undertaking the project? a.P19b.P20c.P21d.P22
- Assume a company has 12,5 million shares in issue. The current market price per share is R65 per share. The company has the opportunity to invest in a project with a total value of R45 million. The net present value of the project is R35 million. What will the companies share price be if capital markets fully reflect the value of undertaking the project? 1. R67,50 02. R67,80 O 3. R65 O 4. R68Country Wallpapers is considering investing in one of three mutually exclusive projects, E, F, and G. The firm’s cost of capital, r, is 10%, and the risk-free rate, RF, is 2%. The firm has estimated each project’s cash flow and each project’s beta, as shown in the following table. Project (j) E F G Initial investment (CF0) -$15,000 -$11,000 -$19,000 Year (t) Cash inflows (CFt) 1 $6,000 $6,000 $ 4,000 2 6,000 4,000 6,000 3 6,000 5,000 8,000 4 6,000 2,000 12,000 Beta 1.80 1.00 0.60 a. Find the NPV of each project, using the firm’s cost of capital. Which project is preferred in this situation? b. The firm uses the following equation to determine the risk-adjusted discount rate, RADRj, for each project j: RADRj = RF + Bj x (rm -RF) Where RF = risk-free rate 2% Bj = beta of project j RADRj = risk-adjusted discount rate for project j rm = expected return on market portfolio 10% Substitute each project’s beta into this equation to determine its RADR. c. Use the RADR for each project to…Q.An all-equity company is considering borrowing $10,000,000 and using the borrowed funds to repurchase shares. The company's cost of equity is 9%. EBIT is expected to be $3,600,000 every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. If the company proceeds with the capital restructing, what will be the value of the company according to M&M Proposition I without taxes?
- Yonkers Inc. is issuing new common shares in a rights offer to raise $10 million for a new project. The subscription price for each new share is $20. The firm currently has two million common shares outstanding, each priced at $25 in the market. What is the price of each right? Select one: a. $1 b. $2 c. $5 d. $10 e. $15The market cap of the firm is $100 million (10 million shares at $10/share). The firm announces the decision to invest in a project with a present value of $3.5 million. What is the new market price per share?Corporation XYZ wants to invest in a project for which the need is 44.4 million. 7.8 million will come from a bank loan at 7.99 percent per year. 7.3 million will come from issuing bonds with a bond rate of 5.46. The rest will be financed with a stock issue that will pay dividends of 5.44 dollars per share. The average stock price is 107.09. Compute the cost of capital for this project in percentage points if the tax rate is 35%
- 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 $10,443,864You are looking to purchase Company A. Your projections for the EBITDA of Company A are as follows: EBITDA $21.51 Year 1 $2.0 O $19.77 $21.78 Your cost of capital is 20%. Your investment banker shows you the EBITDA multiples for the following comparable companies: Company x 5.0x Company y 5.50x Company z 6.0x Year 2 $3.0 Given the above information what is the price that you would like to offer to Company A shareholders? Not enough information Year 3 $3.5 None of the above Year 4 $4.0 Year 5 $5.0Assume BigData Inc. has no cash on hand, but wants to take on a project that adds $70 million in market value to the firm’s assets, and has an NPV of $30 million. The project requires an initial investment of $40 million. BigData Inc. wants to maintain their 50% Debt to Value Ratio. How much debt should they issue, and how much should they either pay stockholders in dividends or raise from stockholders via new equity issuance?