--%>
Assignment Help - homework help

Problem on EBIT

ABC Corporation stock sells at $27 per share and its dividend per share is $1.20. ABC has price-earnings ratio of 16. The company contains $40 million worth of bonds, selling at par, with 8.5% coupon. The EBIT of ABC is of $12 million and its tax rate is 30%. Calculate: (i) the dividend payout ratio, (ii) the total number of shares, and (iii) the total value of ABC.

E

Expert

Verified

Given,

119_ABC.jpg

Price-earnings ratio = price per share/EPS = 16

27/EPS = 16
EPS = $1.6875

Dividend payout ratio = DPS/EPS = 1.2/1.6875 = 0.7111 = 71.11%

Value of equity = 3.5674*$27 = 96.32 million

Value of debt = 40 million

Total value of Tafton = $136.32 million

Thus the dividend payout ratio is 71.11%, the total number of shares is 3.5674 million and the total value of AB is $136.32 million.

   Related Questions in Corporate Finance

  • Q : Explain the working of breakthrough for

    Explain the working of breakthrough in low-discrepancy sequences used for option valuation.

    		•
  • Q : Explain lognormal random walk based on

    Explain lognormal random walk based on Brownian motion.

    		•
  • Q : What is Financial Analysis Financial

    Financial Analysis: It is the investigation and interpretation of financial statements and associated financial reports. Trained and certified accountants generally complete this kind of analysis. The role of a financial analyst is to

    		•
  • Q : Problem on arbitrage opportunity John

    John Chan considers purchasing a six-month stock futures contract on the shares of Li & Fung Limited. Shares of Li & Fung Limited are now presently trading at $50 per share and it is predicted that Li & Fung Limited will pay a dividend of $1 per share in o

    		•
  • Q : Who explain match theoretical & market

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

    		•
  • Q : What is the impact of auto portfolio

    What is the impact of auto portfolio into the quotation of the shares?

    		•
  • Q : International financial what can we

    what can we expanded opportinity set of international finance?

    		•
  • 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 : Purchaing or leasing problem Crawford

    Crawford Corporation is planning to lease a machine for the next 4 years for an annual lease payment of $3,000 paid in advance, plus a non-refundable initial fee of $3,000. There is a 1-year delay for the tax benefits of leasing. Crawford may buy the machine, deprecia

    		•
  • Q : Explain realization of name valuation

    I suppose that a valuation consciously realized in my name tells me how much I have to offer for the company, am I right?

    		•