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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\\

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Consider a small country that is closed to trade, so its net exports are equal to zero. The following equations describe the eco
viva [34]

Answer:

Y = 300

government multiplier 2

output demanded increase by 20

If income tax is applied:

Y = 272.72

multipliers: 2.253775

increase 22.53775 billons

As disclosure it has a larget effect when the income tax is levied based on income rather than a flat rate.

Explanation:

DI = Y - 100

C = 30 + 0.6(Y - 100)

C = 30 - 60 + 0.6Y

C = 0.6Y - 30

Y = C + G + I

Y = (0.6Y -30) + 120 + 30

Y = 120 / 0.4 = 300

C = (0.6)300 - 30 = 150

With C we solve for the multiplier:

150/300 = 0.5

1 / (1 - 0.5) = 2

10 x 2 = 20

If variable that:

C = 30 + 0.6 (0.75Y)

C = 30 + 0.45Y

Y = 0.45Y + 120 + 30

Y = 150/.55 = 272,72

C = 30 + 0.45Y = 152,72

Propensitivity to consume:

152.72/272.72 = 0,5563

multiplier:

1 (1 - PMC) = 2.253775073

10 nillon will icnrease x 2.25377 = 22.54 billons

8 0
3 years ago
Outdoor Expo provides guided fishing tours. The company charges $200 per person but offers a 10% discount to parties of four or
lukranit [14]

Answer:

a. Recording of transactions:

May 7, Accounts Receivable (Dr.) $900

Sales Revenue (Cr.) $900

May 15, Customer service Expense (Dr.) $360

Sales Allowance (Cr.) $360

May 20, Cash (Dr.) $495

Cash Discount (Dr.) $45

Sales Allowance (Dr.) $360

Accounts receivable (Cr.) $900  

Explanation:

b. Net Sales :

Total Quote ($180 * 5 ) = $900

Less : Cash Discount 5% = 45

Less : Sales Allowance 40% = 360

Net Sales = $495

c. Outdoor expo will record sales after deducting the cash discount. This discount is availed by customer as repayment is made within 15 days. The sales allowance is subtracted from the gross sales as the compensation is made from the outdoor expo due to mistake from their guide on tour. The net sales reported in Income statement will be $495.

4 0
2 years ago
Whats the purpose for people to connect to products
MAVERICK [17]
So they will want to buy them if someone sees a product they like and maybe feels a connection to buy it then they will buy it
7 0
3 years ago
Read 2 more answers
Hugh has the choice between investing in a city of heflin bond at 6.60 percent investing in a surething bond at 10.00 percent. a
butalik [34]

Answer: Surething Inc, needs to issue bonds with 11% interest rate in order to make Hugh indifferent between investing in two bonds.

We arrive at the answer in the following manner:

The City of Helfin bonds are municipal bonds and hence they are tax free. This means that Hugh will get an after - tax return of 6.6%.

The bonds of Surething Inc offering a 10% interest, however are taxed at 40%. So, the current after-tax returns of the bond is:

After - tax return= Pre- tax return * (1 -tax rate)

After-tax return= 0.1 * (1-0.4)

Current after tax return = 0.06 or 6%

However Hugh will be indifferent to investing in these two bonds only if they offer the same after-tax return of 6.6%.

Given this, we can calculate the indifference rate as follows:

After - tax return= Pre- tax return * (1 -tax rate)

0.066= Pre- tax return * (1 -0.4)

\frac{0.066}{0.6}= Pre-tax return

Pre-tax return = 0.11 or 11%.

8 0
3 years ago
The following bond investment transactions were completed during a recent year by Starks Company: Year 1 Jan. 31 Purchased 75, $
Nadusha1986 [10]

Answer and Explanation:

The Journal entries is shown below:-

Jan 31

Investment in Govt Bonds Dr, $75,000

Interest Receivable Dr, $375  

      To Cash 75,375

(Being cash is recorded)

July 31

Cash Dr $2,250  

      To Interest Receivable $375

       To Interest Income 1,875

($75000 × 6% × 5 ÷ 12)

(Being interest on bond is recorded)

Aug 30

Cash Dr, $34,650

Loss on Sale of Bonds Dr, $700

($35,000 - 980 × $35)                

     To Investment in Govt Bonds $35,000

      To Interest Income $350

(Being loss on sale is recorded)

Dec 31

Interest Receivable Dr,  $1,200  

To Interest Income $1,200

(40 × $1,000 × 6% × 6 ÷ 12)

(Being interest on bonds is recorded)

3 0
3 years ago
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