Wysiwyg corporation is 100% equity financed. it is expected to earn $10 per share in pretax cash flow every year in perpetuity. profits after tax are paid out annually as dividends. there are 1 million shares outstanding. the corporation tax rate is 35%. the required return on wysiwyg equity (and hence its assets) is 11%. ignore any taxes paid at the personal level.
a.) what is wysiwyg corporation’s annual after-tax cash flow? what will be the market capitalizationof wysiwig’s equity and the value of the firm?
b.) now suppose wysiwyg decides to undertake a leveraged recapitalization by issuing $12 million in debt at an annual interest rate of 7% and using the proceeds to buy back shares of equity. assume that thefirm’s operations do not change. what is the present value of the tax shield from the interest onwysiwyg’s debt?
c.) what must be the firm’s total (debt plus equity) market capitalization after the recapitalization? what is the value of the firm’s debt and the value of its equity? what is the net gain to the equity shareholders of the firm?
d.) how many shares had to be bought back to accomplish the recapitalization and what is the new share price?
Answers: 3
Business, 21.06.2019 16:10
Visburg concrete company pours concrete slabs for single-family dwellings. lancing construction company, which operates outside visburg's normal sales territory, asks visburg to pour 40 slabs for lancing's new development of homes. visburg has the capacity to build 300 slabs and is presently working on 250 of them. lancing is willing to pay only $3, 300 per slab. visburg estimates the cost of a typical job to include unit-level materials, $1, 440: unit-level labor, $720: and an allocated portion of facility-level overhead, $1, 200. required calculate the contribution to profit from the special order. should visburg accept or reject the special order to pour 40 slabs for $3, 300 each?
Answers: 2
Business, 21.06.2019 21:00
Upscale hotels in the united states recently cut their prices by 20 percent in an effort to bolster dwindling occupancy rates among business travelers. a survey performed by a major research organization indicated that businesses are wary of current economic conditions and are now resorting to electronic media, such as the internet and the telephone, to transact business. assume a company's budget permits it to spend $5,000 per month on either business travel or electronic media to transact business. graphically illustrate how a 20 percent decline in the price of business travel would impact this company's budget set if the price of business travel was initially $1,000 per trip and the price of electronic media was $500 per hour. suppose that, after the price of business travel drops, the company issues a report indicating that its marginal rate of substitution between electronic media and business travel is 1. is the company allocating resources efficiently? explain.
Answers: 1
Business, 22.06.2019 05:10
1. the political environment in india has proven to be critical to company performance for both pepsico and coca-cola india. what specific aspects of the political environment have played key roles? could these effects have been anticipated prior to market entry? if not, could developments in the political arena have been handled better by each company? 2. timing of entry into the indian market brought different results for pepsico and coca-cola india. what benefits or disadvantages accrued as a result of earlier or later market entry? 3. the indian market is enormous in terms of population and geography. how have the two companies responded to the sheer scale of operations in india in terms of product policies, promotional activities, pricing policies, and distribution arrangements? 4. “global localization” (glocalization) is a policy that both companies have implemented successfully. give examples for each company from the case.
Answers: 1
Business, 22.06.2019 05:30
Eliza works for a consumer agency educating young people about advertisements. instead of teaching students to carefully read advertisement claims, she encourages them to develop a strong sense of self and to keep their life goals and dreams separate from commercial products. why might eliza's advice make sense?
Answers: 2
Wysiwyg corporation is 100% equity financed. it is expected to earn $10 per share in pretax cash flo...
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