Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. flood motors is an all-equity firm with 200,000 sh

Flood Motors is an all-equity firm with 200,000 shares outstanding. The company's EBIT is RM2,000,000,...

80.2K

Verified Solution

Question

Accounting

image

Flood Motors is an all-equity firm with 200,000 shares outstanding. The company's EBIT is RM2,000,000, and EBIT is expected to remain constant over time. The company pays out all its earnings each year, so its EPS equals its DPS. The company's tax rate is 40%. The company is considering issuing RM2 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated YTM of 10%. The risk-free rate is 6.6%, and the market risk premium is 6%. The company's beta is currently 0.9, but investment bankers say the beta will rise to 1.1 if the recapitalization occurs. Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization. What would be the company's stock price following the recapitalization

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

How many 65-W lightbulbs can be connected in parallel across a potential difference of 80 V...

Physics
Q

State of economy Probability Estimated Return (Fund A) Estimated Return (Fund B) Great 30% 10% 25% Average 30% 15% 11% Poor 40% 20% 15% If you invest $2,000 in Fund A...

Finance
Q

The acts committed during the Holocaust are considered one of the worst in the history...

Biology
Q

1 infinite 2 zero 4 non uniform The correct curve between the magnetic induction 2...

Physics
Q

Members of the student council are taking a trip to the state legislature. The student...

Basic Math
Q

Part 2 of 4 k x 3 Part 3 of 4 g x Part 4...

Algebra
Q

Rita is doing research for the city newspaper on the eight topics listed below She...

Algebra
Q

uno company sold office equipment with a cost of $43,390 and accumulated depreciation of $38,645...

Accounting
Q

Question Content AreaCooper Industries is considering a project that would require an initial investment of...

Accounting
Q

1. Briefly identify each of the three major methods of calculating depreciation (Straight-Line, Double Declining...

Accounting
Q

Acquired $156,750 of equipment. The payment was made with 10% down and financing the remaining...

Accounting
Q

Required For each of the following events, determine the amount of freight paid by...

Accounting