--%>
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 : How could we acquire an indisputable

    How could we acquire an indisputable discount rate?

    		•
  • Q : Calculate the risk-free rate You have

    You have been given the following information on two corporations; you are to assume that thesecurities are correctly priced. My Corp, Inc. has a Beta of 1.25 and an Expected Return of .145;Your Corp, Inc. has a Beta of .75 and an Expected Return of .095. Based on the

    		•
  • Q : Commercial Banking Assignment Part I

    Part I Guidelines and requirements: The questions in Part I of this assignment are based on the materials covered in Units 1 and 2. Please write a short-ess

    		•
  • Q : What is optimal capital structure What

    What is optimal capital structure?

    		•
  • Q : MIRR & IRR Projects Answer using

    Answer using Microsoft Word and your answer should be between 100 and 150 words Question1. Identify the major

    		•
  • Q : CAPM-Project Evaluation and Risk

    UCD Vet Products – a hypothetical publicly traded corporation (UCDV) — is considering investing in a new line of equine DNA analysis technology for race horse breeders. The project will yield the net cash flows listed in the table below. Assume that this p

    		•
  • Q : Variance of a portfolio The variance of

    The variance of a portfolio of 40 stocks will be the addition of _______ variance terms and _______ covariance terms. A) 40; 1560B) 40; 1600C) 80; 40D) 1600; 40

    		•
  • Q : Case Study 2 You have joined Zurich

    You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following information: Zurich Pvt Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012, the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on income. The firm

    		•
  • Q : Illustrates financial consultant has

    A financial consultant obtains various valuations of my company when this discounts the Free Cash Flow (FCF) as opposed to when this uses the Equity Cash Flow. Is it correct?

    		•
  • Q : Data Case Please assist with the

    Please assist with the attached Data Case assignment

    		•