DEVRY FIN 516 Week 7 Homework Set
DEVRY FIN 516 Week 8 Final Exam Guide
KELLER MGMT 303 Entire Course Includes Midterm and…
KELLER MGMT 303 Week 1
KELLER MGMT 303 Week 2
KELLER MGMT 303 Week 3
KELLER MGMT 303 Week 4 Midterm Exam
KELLER MGMT 303 Week 4
KELLER MGMT 303 Week 5
KELLER MGMT 303 Week 6
KELLER MGMT 303 Week 7
KELLER MGMT 303 Week 8 Final Exam
KELLER NETW 561 Entire Course
KELLER NETW 561 Final Exam 100
KELLER NETW 561 Midterm Exam
KELLER NETW 561 Week 1 DQ 1 Societal Changes as a…
KELLER NETW 561 Week 1 DQ 2 Wireless Technology an…
KELLER NETW 561 Week 2 Course Project Proposal
DEVRY FIN 516 Week 5 IPO Paper
DEVRY FIN 516 Week 5 Homework
DEVRY FIN 516 Week 4 Midterm
DEVRY FIN 516 Week 4 Homework
DEVRY FIN 516 Week 3 Homework
DEVRY FIN 516 Week 2 Mini Case Assignment
DEVRY FIN 516 Week 2 Homework
DEVRY FIN 516 Week 1 Homework
DEVRY FIN 516 Entire Course NEW
DEVRY FIN 515 Week 7 Problem Set
DEVRY FIN 515 Week 6 Quiz
DEVRY FIN 515 Week 6 Problem Set
DEVRY FIN 515 Week 5 Problem Set
DEVRY FIN 515 Week 4 Problem Set
DEVRY FIN 515 Week 4 Midterm
DEVRY FIN 515 Week 3 Problem Set
DEVRY FIN 515 Week 2 Quiz
Authorizations, license

Visible by: Everyone 
All rights reserved

9 visits
DEVRY FIN 516 Week 6 Homework
This doc cannot be viewed.
DEVRY FIN 516 Week 6 Homework
Check this A+ tutorial guideline at
www.assignmentcloud.com/fin516new/fin516week6homework
For more classes visit
www.assignmentcloud.com
FIN 516 Week 6 Homework
Problem 289 on Acquisition Analysis Based on Chapter 28 Mergers and Acquisitions
Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.
a) If you pay no premium to buy TargetCo, what will your earnings per share be after the merger?
b) Suppose you offer an exchange ratio such that, at current preannouncement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will your earnings per share be after the merger?
c) What explains the change in earnings per share in part a)? Are your shareholders any better or worse off?
d) What will your priceearnings ratio be after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo’s premerger P/E ratio?
Problem 168 on Managerial Decision Based on Chapter 16 Financial Distress, Managerial Incentives, and Information
As in Problem 1, Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $150 million, $135 million, $95 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the riskfree interest rate is 5% and that, in the event of default, 25% of the value of Gladstone’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.)
a) What is the initial value of Gladstone’s equity without leverage?
Now suppose Gladstone has zerocoupon debt with a $100 million face value due next year.
b) What is the initial value of Gladstone’s debt?
c) What is the yieldtomaturity of the debt? What is its expected return?
d) What is the initial value of Gladstone’s equity? What is Gladstone’s total value with leverage?
Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.
e) If Gladstone does not issue debt, what is its share price?
f) If Gladstone issues debt of $100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part e)?
Problem 169 on Financial Distress Based on Chapter 16 Financial Distress, Managerial Incentives, and Information
Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10 million each year. Kohwe currently has 5 million shares outstanding, and it has no other assets or opportunities.
Suppose the appropriate discount rate for Kohwe’s future free cash flows is 8%, and the only capital market imperfections are corporate taxes and financial distress costs.
a) What is the NPV of Kohwe’s investment?
b) What is Kohwe’s share price today?
Suppose Kohwe borrows the $50 million instead. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $50 million on the loan. Suppose that Kohwe’s corporate tax rate is 40%, and expected free cash flows are still $10 million each year.
c) What is Kohwe’s share price today if the investment is financed with debt?
Now suppose that with leverage, Kohwe’s expected free cash flows will decline to $9 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Kohwe’s future free cash flows is still 8%.
e) What is Kohwe’s share price today given the financial distress costs of leverage?
Check this A+ tutorial guideline at
www.assignmentcloud.com/fin516new/fin516week6homework
For more classes visit
www.assignmentcloud.com
FIN 516 Week 6 Homework
Problem 289 on Acquisition Analysis Based on Chapter 28 Mergers and Acquisitions
Your company has earnings per share of $4. It has 1 million shares outstanding, each of which has a price of $40. You are thinking of buying TargetCo, which has earnings per share of $2, 1 million shares outstanding, and a price per share of $25. You will pay for TargetCo by issuing new shares. There are no expected synergies from the transaction.
a) If you pay no premium to buy TargetCo, what will your earnings per share be after the merger?
b) Suppose you offer an exchange ratio such that, at current preannouncement share prices for both firms, the offer represents a 20% premium to buy TargetCo. What will your earnings per share be after the merger?
c) What explains the change in earnings per share in part a)? Are your shareholders any better or worse off?
d) What will your priceearnings ratio be after the merger (if you pay no premium)? How does this compare to your P/E ratio before the merger? How does this compare to TargetCo’s premerger P/E ratio?
Problem 168 on Managerial Decision Based on Chapter 16 Financial Distress, Managerial Incentives, and Information
As in Problem 1, Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $150 million, $135 million, $95 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the riskfree interest rate is 5% and that, in the event of default, 25% of the value of Gladstone’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.)
a) What is the initial value of Gladstone’s equity without leverage?
Now suppose Gladstone has zerocoupon debt with a $100 million face value due next year.
b) What is the initial value of Gladstone’s debt?
c) What is the yieldtomaturity of the debt? What is its expected return?
d) What is the initial value of Gladstone’s equity? What is Gladstone’s total value with leverage?
Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.
e) If Gladstone does not issue debt, what is its share price?
f) If Gladstone issues debt of $100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part e)?
Problem 169 on Financial Distress Based on Chapter 16 Financial Distress, Managerial Incentives, and Information
Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10 million each year. Kohwe currently has 5 million shares outstanding, and it has no other assets or opportunities.
Suppose the appropriate discount rate for Kohwe’s future free cash flows is 8%, and the only capital market imperfections are corporate taxes and financial distress costs.
a) What is the NPV of Kohwe’s investment?
b) What is Kohwe’s share price today?
Suppose Kohwe borrows the $50 million instead. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $50 million on the loan. Suppose that Kohwe’s corporate tax rate is 40%, and expected free cash flows are still $10 million each year.
c) What is Kohwe’s share price today if the investment is financed with debt?
Now suppose that with leverage, Kohwe’s expected free cash flows will decline to $9 million per year due to reduced sales and other financial distress costs. Assume that the appropriate discount rate for Kohwe’s future free cash flows is still 8%.
e) What is Kohwe’s share price today given the financial distress costs of leverage?
 Keyboard shortcuts:
RSS feed Subscribe to comments on this doc.  Latest comments
 ipernity © 20072018

Help & Contact

The ipernity Team blog

About ipernity

Thanks!

The ipernity Club
Guide of good conduct  Group guidelines  Privacy Policy  Terms of service
ipernity for iPhone / iPad  ipernity for Android  Developers space 
Facebook
Twitter  Find us on:
 Language
 English
Please signin to write a comment.