1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
liq [111]
2 years ago
10

The Simon Company (SIMON) currently has $300,000 market value (and book value) of perpetual debt outstanding carrying a coupon r

ate of 6%. Its earnings before interest and taxes (EBIT) are $150,000, and it is a zero growth company. SIMON's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $90.00.Now assume that SIMON is considering changing from its original capital structure to a new capital structure that results in a stock price of $96 per share. The resulting capital structure would have a $504,000 total market value of equity and a $756,000 market value of debt. How many shares would SIMON repurchase in the recapitalization
Business
1 answer:
Reptile [31]2 years ago
8 0

Answer:

The answer is "4,750"

Explanation:

They have indeed been given the information that we require.

The current market cap for Simon Company (SIMON) is $300,000.

rate= 6%

EBIT=$150,000

The business has no plans to expand.

The current cost of capital is 8.8%,

The tax rate is 40%.

The company has 10,000 shares of common stock mostly on market.

The stock is being offered at a $90.00 per share price.

Assume SIMON is considering switching in its current financial performance to one that results in a share price of $96 per share.

The resultant capital structure would have a combined valuation of $504,000 in capital and $756,000 in equity.

Remaining Shares= equity market value /  per share price

n =\frac{S}{P}  \\\\= \frac{\$504,000}{ \$96}\\\\= \$5,250

The initial number of shares minus the resultant number of shares equals the number of repurchased shares:

AJC will buy back a certain number of shares.

= 10,000 - 5,250\\\\= 4,750\\

You might be interested in
Old Economy Traders opened an account to short sell 1,000 shares of Internet Dreams from the previous problem. The initial margi
GrogVix [38]

Answer:

a.38%

b. No because the margin is above the requirement at 38%

c.-150%

Explanation:

a.

1000 shares*$40 per share = 40000

margin requirement is 50% so equity = 20000

1 year later price increase to 50

$1000 shares*$50 per share = 50000

dividend = $2*1000 = 2000

margin = 20000/52000 = 38%

b.

No because the margin is above the requirement at 38%

c.

Price of 1000 stock year 1 at 50$/share = 50000

40000 – 50000 = -10000

Rate of return = (-10000 -20000)/20000 = -150%

3 0
3 years ago
A company determined that the budgeted cost of producing a product is $30 per unit. On June 1, there were 80,000 units on hand,
gtnhenbr [62]

Answer:

c) $9,000,000

Explanation:

The cost of good sold = Cost per unit × Quantity sold

  Quantity sold = 300,000, cost per unit = $30

The cost of sold = $30 × 300,000 =  $9,000,000

This can be confirmed as follows:

                                                                  Unit

opening inventory                                     80,000

Production(see note below)                    <u> 340,000</u>

Available or sale                                       420,000

Closing inventory                                    <u>(120,000)</u>

Units sold                                                 <u>300,000</u>        

Cost of units sold = 300,000 × $30 = $9,000,000

Note :

Production budget = sales budget + closing inventory - opening inventory

= 300,000 + 120,000 - 80,000 = 340,000 units

                               

6 0
3 years ago
Economists usually assume that production is subject to increasing opportunity costs because: a. higher production usually resul
umka2103 [35]

Answer:

d. not all resources are equally suited to producing every good.

Explanation:

The rule of increasing cost of opportunity is the principle that, when you keep increasing the development of one item, the cost of opportunity of creating the next unit rises. It occurs just as you redistribute resources to create one product which was ideally suited to create the initial product.

8 0
3 years ago
Which of the following actions would likely raise life insurance premiums?
Dafna1 [17]
Living a non-smoker its b
6 0
3 years ago
Read 2 more answers
You purchased two WXO 30 call option contracts at a quoted price of $.35. What is your net gain or loss on this investment if th
tekilochka [14]

Answer: $670

Explanation:

Since the quoted price of $.35, the cost to purchase two WXO 30 call option will be: = $0.35 × 2 = $0.70

Then, the price of RADM 30 call option contract will be calculated as;

= $33.7 - $30

= $3.70

The net gain on one RADM 30 call option will then be:

= $3.70 - $0.35

= $3.35.

Therefore, the net gain on 2 RADM30 call options will be:

= $3.35 × 2

= $6.70

Since there are 100 shares in a option contract, the gain will be:

= $6.70 × 100

= $670

3 0
2 years ago
Other questions:
  • Replenishment lead time is _________.a. The time between placing an order and receiving the materials. b. The amount of time the
    9·1 answer
  • Barton Corporation acquires a coal mine at a cost of $1,500,000. Intangible development costs total $360,000. After extraction h
    7·1 answer
  • Explain why do you think you would be hired based on your selected interview outfit?
    7·1 answer
  • Which security method involves coding your readable emails into a format that is illegible
    6·1 answer
  • Melissa invested her savings in two investment funds. The amount she invested in Fund A was $6000 less than the amount she inves
    11·1 answer
  • Sutton Corporation, which has a zero tax rate due to tax loss carry-forwards, is considering a five-year, $6,000,000 bank loan t
    12·1 answer
  • Maricela writes slowly. When preparing a first draft, she spends a good deal of time formatting and choosing the correct font. M
    10·1 answer
  • The use of __________ has increased productivity along the assembly line and within service-based businesses while simultaneousl
    12·1 answer
  • Jay and Carrie Garrett operate a small retail store in a college town that sells only house plants and accessories, which they n
    9·1 answer
  • The main function of the federal reserve system is to.
    6·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!