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xxTIMURxx [149]
3 years ago
15

Schwartz Industry is an industrial company with 102.6 million shares outstanding and a market capitalization​ (equity value) of

$ 3.49 billion. It has ​$2.05 billion of debt outstanding. Management have decided to delever the firm by issuing new equity to repay all outstanding debt. a. How many new shares must the firm​ issue? b. Suppose you are a shareholder holding 100​ shares, and you disagree with this decision. Assuming a perfect capital​ market, describe what you can do to undo the effect of this decision.
Business
1 answer:
Whitepunk [10]3 years ago
6 0

Answer:

a. How many new shares must the firm​ issue?

We first find the price per share. We divide the market capitalization value by the number of shares outstanding:

Price per share = $3,490,000,000/102,600,000

                         = $34.01

Now, we divide the debt outstanding by the price per share

Shares to be issued = $2,050,000,000/34.02

                                 = 60,266,476

Thus, Schwartz industry must issue 60,266,476 new shares to pay all outstanding debt.

b. Suppose you are a shareholder holding 100​ shares, and you disagree with this decision. Assuming a perfect capital​ market, describe what you can do to undo the effect of this decision.

All you can do is to even out your position under the new circumstances. To do so, you must buy a proportional number of newly issued shares.

In this case, at first the total number of shares outstanding is 102,600,000, and you hold 100 of those. That means that you hold the 0.000097% of the shares.

Now, the total number of shares outstanding is 162,866,476, and the 0.000097% of that is 157, thus, to keep your position, you must buy 57 of the newly issued shares.

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Wansley Enterprises is considering a new project. The company has a beta of 1.0, and its sales and profits are positively correl
Bezzdna [24]

Answer:

A. The proposed new project would have more stand-alone risk than the firm's typical project.

Explanation:

4 0
2 years ago
On January 15, 2019, Dillon purchased the rights to a mineral interest for $3,500,000. At that time, it was estimated that the r
lutik1710 [3]

Answer:

$175,000

Explanation:

Depletion per Unit =$3500000 / 500000 = $7 per unit

25,000 units were sold during the year.

There are two ways of figuring depletion on mineral property.

1. Cost Depletion

2. Percentage Depletion

Generally, we must use the method that gives you the larger deduction.

Calculation of Cost Depletion:

Cost Depletion = Units Sold * Depletion Rate = 25,000 units * $7 per unit = 175,000

Calculation of Percentage Depletion:

Percentage Depletion = Gross Income from Property During the Year * Depletion Rate = 800,000 * 22% = 176,000

Percentage Depletion cannot be more than 50% of net taxable income from the property.

Percentage Limit = (Sales - Expenses ) * 50% = (800,000 - 500,000) * 50% = 300000*50% = 150,000

Thus Percentage Depletion is limited to $150,000

Thus, the deduction is $175,000 (Higher to Cost or Percentage Depletion)

7 0
3 years ago
(A bond forward) A certain 10-year bond is currently selling for $920 A friend of yours owns a forward contract on this bond tha
sleet_krkn [62]

Answer: -$100

Explanation:

Value of forward contract = Selling price - Forward price on bond

Forward price = Present value of cashflows + Present value of bond

Periodic rate = 7%/ 2 = 3.5% per semi annum

= 8% / 2 = 4%

3.5% will be used to discount the payment 6 months from now as that is the 6 month rate. The rest will be 4%.

= (80 / (1 + 3.5%) ) + ( 80 / ( 1 + 4%)²) + (940 / ( 1 +4%)²)

= $1,020.342

= $1,020

Value of forward contract = 920 - 1,020

= -$100

4 0
2 years ago
A new corporate bond is being offered for $930. The bond has a face value of $1,000 and matures in 10 years. The coupon rate is
PilotLPTM [1.2K]

Answer:

The answer is 7.65%

Explanation:

The cost of capital is equal to the cost of debt in this example as it involves a debt instrument. The formula for the cost of debt is as follows:

(Interest Expense x (1 – Tax Rate) ÷  (Amount of Debt – Debt Acquisition Fees + Premium on Debt – Discount on Debt)

In the example, the given values are the following:

Interest Expense = 7% x $1,000 = $70 (no tax rate was provided)

Amount of debt = $1,000 (face value of the bond)

Debt acquisition fee = $15

Discount on debt = $70 ($1,000 face value vs. the $930 proceeds of the bond, the bond was issued at a discount)

Solution:

$70 ÷ ($1,000 - $15 - $70) = 7.65% cost of capital (cost of debt)

8 0
3 years ago
two sustainable ways in which businesses could assist the schools to ensure that school leavers are better prepared for the work
Ainat [17]
They could provide internships towards graduates to allow them to acquire working experience.
They could also provide training to help graduates have an understanding of what they are expected of in the workplace.
7 0
2 years ago
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