--%>
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 : Porters Primary activities Porter’s

    Porter’s Primary activities: 1. Inbound Logistics: • Suppliers’ details.• Storage details with respect to materials.• Details regarding pl

    		•
  • Q : Problem on Yield to maturity Shawna

    Shawna desires to invest her recent bonus in a 4-year bond which pays a coupon of 11 % semi-annually. The bonds are selling at $962.13 nowadays. When she buys such bond and holds it to the maturity, what would be her yield? (Round to the nearest answer.) (i) 11.5%&nbs

    		•
  • Q : PV of Dividends PV of dividends:

    PV of dividends: Cortez, Inc., is expecting to pay out a dividend of $2.50 next year. After that it expects its dividend to grow at 7 percent for the next four years. What is the present value of dividends over the next five-year period if the required rate of return is 10 percent?

    		•
  • Q : Explain the result of volatility

    Explain the result of volatility structure.

    		•
  • Q : Strategy of Bear Spread State when

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

    		•
  • Q : Who explain match theoretical & market

    Who demonstrated that how to match theoretical and market prices for normal bonds?

    		•
  • Q : Working Capital - Current Assets and

    I do not know the meaning of Working Capital Requirements. I think this should be same to Working Capital (Current Assets – Current Liabilities). There am I right?

    		•
  • Q : What is Money Spreads Money Spreads :

    Money Spreads: Option trading strategies can be classified into various types like those pertaining to combination of one option with another option or set of options, other derivative contracts, stocks, etc. This paper focuses mainly on money spreads

    		•
  • Q : Sinking Fund problem Berks Corporation

    Berks Corporation is expecting to have EBIT next year of $12 million, with a standard deviation of $6 million. Berks have $30 million in bonds with coupon of 10%, selling at par, which are being retired at the rate of $2 million annually. Berks also have 100,000 share

    		•
  • Q : Option Trading Strategies Explain the

    Explain the term Option Trading Strategies?

    		•