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NEW QUESTION: 1
Van Slyke Inc. has $5,000,000 in assets, and currently has no debt--it is financed entirely with 200,000 shares of common stock, each of which trades at $25 per share. The firm's EBIT is expected to be
$1,250,000 at year-end (i.e., at t=1). The corporate tax rate is 40 percent. Van Slyke expects to pay out a dividend at year-end which is 50 percent of its net income. The company estimates that its earnings and dividends grow at a constant rate of 3 percent a year. The company is considering a recapitalization where they would issue $1,000,000 of debt at a before- tax cost of 10 percent. The proceeds from thedebt issued would be used to repurchase shares of the company's stock at $25 per share. The company's investment bankers estimate that the cost of equity capital would be 16 percent after the recapitalization. What would you expect the company's stock price to be immediately following the recapitalization? Assume that the dividend has not yet been paid.
A. $12.15
B. $16.59
C. $20.98
D. $33.17
E. $27.25
Answer: B
Explanation:
Explanation/Reference:
Explanation:
Step 1 Find EPS:
EBIT$1,250,000
Interest expense100,000 = 0.10($1,000,000)
Earnings before taxes$1,150,000
Taxes (40%)460,000
Net income$690,000
Shares purchased = $1,000,000/$25 = 40,000.
Shares remaining = 200,000 - 40,000 = 160,000.
EPS = $690,000/160,000 = $4.3125.
Step 2 Find D1:
EPS(1)P/o = D1
$4.3125 (0.50) = $2.1563.
Step 3 Find Po:
ks = D1/Po + g
0.16 = $2.1563/Po + 0.03
Po = $16.59.

NEW QUESTION: 2
Which customer type is associated with the need for long, stable product lifecycles due to the need for costly system recertification?
A. Finance
B. Medical
C. Digital media and entertainment
D. Retail
Answer: B

NEW QUESTION: 3
An NSX administrator has been tasked with deploying a NSX Edge Virtual machine through an ISO image.
Which virtual network interface card (vNIC) type must be selected while creating the NSX Edge VM allow participation in overlay and VLAN transport zones?
A. Flexible
B. VMXNET2
C. VMXNET3
D. e1000
Answer: C

NEW QUESTION: 4
Which kernel module must be loaded to initiate a RAID-1 like copy of data on two separate storage devices for a clustered storage solution?
A. rsyncd
B. drbd
C. clraid
D. clmirror
Answer: B