--%>
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 : Benefits of Cash to cash analysis

    Benefits of Cash to cash analysis: The benefits of Cash to cash analysis are as following: 1. Helps in better cash management situation thus, increasing liquidity. 2. The cash a

    		•
  • Q : Does the equity of shareholders have

    Does the equity of shareholders represents the savings a company has accumulated by the years?

    		•
  • Q : Illustrates the Gordon and Shapiro

    What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?

    		•
  • Q : Could we explain that goodwill is equal

    Could we explain that goodwill is equal to brand value?

    		•
  • Q : What are the different types of

    What are the different types of mathematics found in quantitative finance?

    		•
  • Q : Expected return and standard deviation

    If an investor is considered to be risk-averse, what is his/her attitude towards expected return and standard deviation?

    		•
  • Q : Problem on price share and stock

    Brittney and Kim Wan Sun have successfully launched a successful talent agency, ABC. They expect the firm’s earnings and dividends to grow by 20% annually for the next 10 years and they establish a strong base and to grow at a constant 5% per year thereafter. AB

    		•
  • Q : NPV and Other Investment Criteria The

    The XYZ Manufacturing Company is considering the below investment proposal. The initial investment is $100,000. It was an expected economic life of 10 years. The net cash flow in the initial year is expected to be $25,000 and annual net cash flow is expected to develo

    		•
  • Q : Is net income of a year is doubtful for

    Is the net income of a year money the company made that given year or is this a number whose importance is quite doubtful?

    		•
  • Q : State Transition Management Transition

    Transition Management: It is a financial service accessible to institutional investors who require making significant modifications to their portfolios, like merging, selling, or substantially restructuring them. This procedure can expose investors to

    		•