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Arisa [49]
3 years ago
13

An all-equity business has 100 million shares outstanding selling for $20 a share. Management believes that interest rates are u

nreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? b. Assuming the Irrelevance Proposition holds, what is the market value of the 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 the recap? Please explain. d. Assume now that the recap increases 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 the market value of equity? e. Do equity shareholders appear to have gained or lost as a result of the recap in this revised scenario?
Business
1 answer:
dedylja [7]3 years ago
4 0

Answer:

a) Market Value = $100 million × $20 = $2,000 million = $2 billion

Market value of equity would remain same = $2 billion

b) Market value would remain same after recap. Only market capitalization would reduce to half.

Market value of equity = 1 billion

c) Buying back shares increases the stock price which demonstrates the faith of the company in its work. But creditors have capital gains.

d) After recap and cash flow firm total value has increased to $2 billion + $100 Million = $2.1 billion and market value of equity has increased from $20 to $22 . ($1000 + $100)/50 = $22.

e) Equity shareholders have gained due to increase in there share value

Explanation:

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Resale price maintenance occurs when: a. the manufacturer suggested retail price. b. minimum prices are enforced. c. consignment
Gemiola [76]

Answer:

b. minimum prices are enforced

Explanation:

The manufacturer of certain products deals with their distributors by exploiting the market failures to negotiate ceiling and minimum prices with the threat of not purchase if the agreement is not validated.

This is done to prevent competition between reseller for the price. This makes the reseller profitable and therefore, the manufactured as well.

6 0
3 years ago
What were working conditions like before the labor movement?
Ivan
Im not sure, sorry, I wish I could help
8 0
3 years ago
Mrs. Larkin rents an apartment to a couple who argue continually, disturbing other tenants. Without going through the lawful evi
natima [27]

Answer:

B.  an actual eviction

Explanation:

Actual eviction -

It refers to the process of getting rid of the tenant by the landlord, for any violation, is referred to as actual eviction.

It is a completely legal practice, where it the landlord is not not comfortable with the tenant or if the tenant violates any rules, then the landlord has the legal right to remove the person.

Hence, from the given question,

As the tenant usually disturbs the neighbors and argues, hence the landlady, Mrs, Larkin has the right to remove them, according to actual eviction.

6 0
3 years ago
Shawna wins the lottery and her income increases by 60 percent. she used to buy 10 pints of cottage cheese per month and now she
Dmitriy789 [7]

Answer: Her income elasticity of demand for cottage cheese is <em><u>0.3333</u></em> making it a <em><u>normal and necessary</u></em> good.

The income elasticity  of demand is given by :

\mathbf{YED = \frac{percentage change in demand}{percentage change in income}}

The percentage change in income is given as 60%. We calculate the percentage change in quantity demanded as follows:

\mathbf{percentage change in quantity demanded = \frac{Q_{1}-Q_{0}}{Q_{0}}}

\mathbf{percentage change in quantity demanded = \frac{12-10}{10}}

\mathbf{percentage change in quantity demanded = 0.2}\\

Substituting the value above in the income elasticity demand formula we get,

\mathbf{YED = \frac{0.20}{0.60}}

<u>YED = 0.33333</u>

Since the income elasticity is positive, and since Shawna buys more cottage cheese after an increase in income, we can classify this good as a normal good.

Since the income elasticity is between 0 and 1 we can also conclude that cottage cheese is also a essential good or a necessity.

7 0
3 years ago
Assume (1) a predetermined overhead rate of $8.00 per machine-hour, (2) actual machine-hours worked during the period of 54,000
rodikova [14]

Answer:

Allocated MOH= $432,000

Explanation:

Giving the following information:

Predetermined overhead rate of $8.00 per machine-hour

Actual machine-hours worked= 54,000 hours

<u>To calculate the allocated overhead, we need to use the following formula:</u>

Allocated MOH= Estimated manufacturing overhead rate* Actual amount of allocation base

Allocated MOH= 8*54,000

Allocated MOH= $432,000

7 0
3 years ago
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