800 | Total Capital | $ 10‚000 | Interest rate on debt = 9% Share price = $25 (MV = BV) The firm is contemplating a leveraged share repurchase that would increase the Debt/Total Capital ratio from the current 12% to 60%. Hayfin’s tax rate is 42%. Calculate EPS‚ Times Interest Earned (TIE = EBIT/Interest Expense)‚ and ROE under the current and proposed capital structures. You can assume that the change in equity due to lower retained earnings is negligible. Thus‚ the only
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250 10.0% 500 11.0 750 13.0 1‚000 16.0 IF THE COMPANY WERE TO RECAPITALIZE‚ DEBT WOULD BE ISSUED‚ AND THE FUNDS RECEIVED WOULD BE USED TO REPURCHASE STOCK. PIZZAPALACE IS IN THE 40 PERCENT STATE-PLUS-FEDERAL CORPORATE TAX BRACKET‚ THE RISK FREE RATE IS 6 PERCENT AND THE MARKET RISK PREMIUM IS 4 PERCENT. A. NOW‚ TO DEVELOP AN EXAMPLE WHICH CAN BE PRESENTED TO PIZZAPALACE’S MANAGEMENT TO
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Bed Bath and Beyond’s Business Risk Bed Bath & Beyond Inc. is a nationwide chain of 575 retail stores selling domestics merchandise (bed linens‚ bath items‚ and kitchen textiles) and home furnishings (kitchen and tabletop items‚ small appliances‚ and basic house wares). In 2003 Bed Bath and Beyond reported annual revenues (gross profit) of approximately $1.8 billion‚ net income of $339 million and net sales of $4.5 billion‚ representing 22% growth in revenue and 32% growth in income as compared
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Introduction American Home Product (AHP) was founded in 1926 with the merging of several small home product companies. As the company expanded in the 1930’s‚ it acquired companies in different businesses. After World War II‚ the company had four lines of businesses: prescription drugs‚ packaged (over-the-counter) drugs‚ food products‚ and housewares and household products. Although the name “American Home Product” has never appeared on its products‚ the firm produces many well-known brands in the
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The firm’s stocks are undervalued. According to the dividends‚ growth rate‚ and discount rate the share price should be $43.36 which is $8.11 higher than the current market price. If the repurchase of $1Million worth of shares occurs‚ the company’s Return on Equity would increase. This would happen since there is less shareholder’s equity in the company due to the lower amount of shares outstanding. Currently the company’s Return on Equity is better than Standard Auto and Allied Motors but worse
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eliminate its dividend and instead use the money to repurchase shares. A. Assuming that there are no taxes and that the repurchase announcement conveys no new information to investors about the profitability or risk of Hole Foods Donuts‚ how do you think the stock price will react to announcement? Provide a written (in words) explanation or a numerical example to provide support for your answer. If there are no taxes the profit may increase As the repurchase announcement conveys no new information to investors
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FIN 534 (Strayer) Financial Management Week 9 Quiz 8 Question 1 2 out of 2 points Which of the following statements about dividend policies is correct? Answer Selected Answer: The clientele effect suggests that companies should follow a stable dividend policy. Correct Answer: The clientele effect suggests that companies should follow a stable dividend policy. Question 2 2 out of 2 points If a firm adheres strictly to the residual dividend policy‚ the issuance of new common stock
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Miller wanted to decide whether or not to let the takeover happen or to repurchase Steinberg’s stock. If the repurchase was to occur‚ Miller had to present to the shareholders at what price to make the repurchase. Miller should repurchase Steinberg’s shares to prevent the takeover and continue the legacy of Walt Disney. In the details provided below‚ we will further discuss the details as to why Miller should repurchase the stock and at what price. Starting as just an in-home studio film
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October 2009. The NPM would have followed the same upward trend as Net Sales if these gains did not occur. The results of the Return on Assets (ROA) and Return on Equity (ROE) are both downward trends‚ which are also due to the gains in Extraordinary Items. If the extraordinary gains were not included in the ROA and ROE ratios‚ then the trends would be upward or stable‚ depicting proper asset investing and sufficient returns to shareholders by Procter & Gamble. The Clorox Company starts with
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request your assistance with the analysis of a stock repurchase. He has operational experience‚ but little financial management experience (he does not have any debt on his balance sheet!). As a result‚ he needs your help convincing his board of directors that the stock repurchase is a good idea. The board is more financially conservative than Mr. Dubinski. Mr. Dubinski wants you to evaluate a scenario where Blaine Kitchenware‚ Inc. (BKI) will repurchase 14 million shares at $18.50 per share. To do so
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