--%>
Assignment Help - homework help

Price per share for Corporation

For XYZ Corporation debt-to-equity ratio, marginal tax rate, and dividend payout ratio are all of 40%. The cost of debt is 10%. Cambria contains 1 million shares of common stock, and $25 million in long-term bonds. Its dividend is $1 per share. Determine the EBIT and the price per share for XYZ.

E

Expert

Verified

Debt-to-equity ratio = 40%
D = $25 million
E = $25/0.4 = $62.5 million

XYZ has 1 million shares of common stock and its current market value is $62.5 million. Hence the price per share is $62.5.

Dividend payout ratio = DPS/EPS = 0.4
1/EPS = 0.4
EPS = $2.5

Earnings available to common shareholders = $2.5*1 million shares = $2.5 million
Profit before tax = $2.5 million/(1 – marginal tax rate) = $2.5 million/(1 – 0.4)
Profit before tax = $2.5 million/0.6 = $4.167 million
Interest expense = $25 million*10% = $2.5 million
EBIT = profit before tax + interest expense = $4.167 + $2.5 = $6.667 million

Thus EBIT is $6.667 million and price per share for XYZ is $62.50

   Related Questions in Corporate Finance

  • Q : Long-Term Financing Needed Long-Term

    Long-Term Financing Needed : - At year-end 2012, total assets for Ambrose Inc. were $1.2 million and accounts payable were $375,000. Sales, which in 2012 were $2.5 million, are expected to increase by 25% in 2013. Total ass

    		•
  • Q : Data Case Please assist with the

    Please assist with the attached Data Case assignment

    		•
  • Q : Which frame work does not give very

    Which model of frame work does not provide the very good prices for bonds?

    		•
  • Q : Which model was great breakthrough for

    Which one model was great breakthrough for side of finance theory?

    		•
  • Q : Continuously compounded rate of return

    Solve for the stated annual rate, r equal to the continuously compounded rate of return implicit in turning $1 at the end of 1925 (beginning of 1926) into these reported valued from RWJ9 in 2008 Figure below: 1. Determine the state

    		•
  • Q : Yield to maturity problem Jenny is

    Jenny is looking to invest in some 5-year bonds which pay annual coupons of 6.25 % and are presently selling at $912.34. What is the present market yield on these bonds? (Round to the closest Answer.) (1) 9.5%  (2) 8.5%  (3) 6.5%  (4) 7.5%

  • Q : Is this possible to make money in the

    Is this possible to make money in the stock market while the quotations are going down? And what is credit sale?

    		•
  • Q : Strategy of Bear Spread State when

    State when markets are anticipated to go down then what is the Strategy of Bear Spread?

    		•
  • Q : Calculating the Cost of Equity You are

    You are an analyst in the financial division of Flipper Industries (FI) which has a beta of 1.80 (you are risk-philic, so you enjoy the thrill of working somewhere so risky). The company just paid a dividend of $1 and dividends are expected to grow at 5% per year. The

    		•
  • Q : Problem on annual lease payments Taurus

    Taurus Corporation needs a computer, which it can buy for $100,000. Taurus will depreciate the computer uniformly over its useful life of 5 years. An investment tax credit of 7% is also available, and the computer will have no residual value. Taurus plans to borrow th

    		•