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bearhunter [10]
3 years ago
5

Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan

I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $2.23 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes.
a. Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.)
Business
1 answer:
amid [387]3 years ago
5 0

Answer:

A) total debt = $2,230,000 and it represents 175,000 - 125,000 = 50,000 outstanding shares

price per share = $2,230,000 / 50,000 = $44.60 per share

B) enterprise value = 175,000 x $44.60 =  $7,805,000

According to M&M proposition I, the enterprise value is the same with or without any outstanding debt. So the company's value is the same for both alternatives.

You might be interested in
quizlet calaf’s drillers erects and places into service an off-shore oil platform on january 1, 2021, at a cost of $10,000,000.
Nostrana [21]

quizlet calaf’s drillers erects and places into service an off-shore oil platform on january 1, 2021, at a cost of $10,000,000. calaf is legally required to dismantle and remove the platform at the end of its useful life in 10 years. calaf estimates it will cost $1,000,000 to dismantle and remove the platform at the end of its useful life in 10 years. (the fair value at january 1, 2021, of the dismantle and removal costs is $450,000.) prepare the entry to record the asset retirement obligation.

Oil Platform 450,000

Asset Retirement Obligation 450,000

What is  asset retirement obligation?

An asset retirement obligation is a contractual requirement for the retirement of a tangible long-lived asset, the timing of which may depend on the occurrence of a future event outside the control of the entity bearing the obligation.

Therefore,

Oil Platform 450,000

Asset Retirement Obligation 450,000

To learn more about asset retirement obligation from the given link:

brainly.com/question/14298631

4 0
1 year ago
Mandy has been temporarily laid off during a recession comma but expects to be rehired when business picks up. Which type of une
soldier1979 [14.2K]

Answer:

Seasonal Unemployment.

Explanation:

6 0
3 years ago
Fleury Security Limited (FSL) is projected to have earnings per share (EPS) of $3.50 next year, and the firm’s dividends are 30%
ra1l [238]

Answer and Explanation:

The computation is shown below:

a) For ROE of the company

As we know that

Debt ratio = 1 - (1 ÷  Equity multiplier)

0.4 = 1 - (1 ÷ Equity multiplier)

(1 ÷ Equity multiplier) = 0.6

Equity multiplier = 1 ÷ 0.6

= 1.6667

Now ROE is  

ROE = Net Profit Margin × Total Asset Turnover × Equity multiplier

= 10% × 0.9 × 1.6667

= 15%

b) For the Price of FSL shares

Expected Dividend next year (D1) = Projected EPS × Dividend payout ratio

= $3.50 × 30%

= $1.05  

And, Required Return(ke) = 12.4%

Growth Rate(g) = ROE × (1 - Dividend payout ratio)

= 15% × (1 - 0.30)

= 10.5%

And finally the Price of STock:-

= D1 ÷ (ke - g)

= $1.05 ÷ (0.124 - 0.105)

= $55.26

C. For  Present Value of Growth Opportunity(PVGO)

As we know that

Present Value of Growth Opportunity(PVGO) = Stock Price - (EPS ÷ Ke)

= $55.26 - ($3.50 ÷ 12.4%)

= $27.03

7 0
3 years ago
Robert is the sole shareholder and CEO of ABC, Inc., an S corporation that is a qualified trade or business. During the current
Arisa [49]

Answer:

a. $293,000

b. $203,000

Explanation:

a. What is Robert's qualified business income?

Robert's qualified business income is the net income minus Robert's salary. Since the salary of $87,900 has already been deducted, $293,000 is Robert's qualified business income.

b. What is Robert's qualified business income if you determined that reasonable compensation for someone with Robert's experience and responsibilities is $177,900?

Extra deductible salary = $177,900 - $87,900 = $90,000

New Robert's qualified business income = $293,000 - $90,000 = $203,000

3 0
3 years ago
During the 1990s, one of the dominant firms in the U.S. cigarette industry would raise prices once or twice a year by about 50 c
Veronika [31]

Answer:

This is an example of price leadership.

Explanation:

Price leadership is a type of practice where a firm, most likely a dominant one, sets the price and other firms follow it. It is commonly seen in an oligopoly market.  

In an oligopoly market, there are a few firms, these firms are interdependent. A price change by one firm affects its rivals.

Price leadership is of different types.

  • Barometric
  • Collusive
  • Dominant

So when a dominant firm changes its price, the followers have to follow it if we they want to retain their market share.

8 0
3 years ago
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