The following information relates to Aberdeen Petroleum Corporation:
Aberdeen Petroleum:
Dividend payout ratio = 25%
Beta = 1.10
Growth rate = 4%
Peer Group:
Dividend payout ratio = 40%
Beta = 1.20
Growth rate = 5%
Aberdeen Petroleum had earnings per share in the current year of $3.00. The U.S. T-bill rate of return is 3.00% and the market rate of return is 9.50%.
1. What is the value of Aberdeen Petroleum's stock with managerial control, assuming such control allows the company to improve its performance to the level of its peer group?
a. $9.63
b. $11.67
c. $15.40
d. $20.68
e. $21.72
2. The following information relates to two recently merged firms:
FCFF1 = $500,000
Existing Capital Structure:
Equity = $300,000,000
Debt = $100,000,000
Ke = 12.00%
Kd = 6.00%
Optimal Capital Structure:
Equity = $240,000,000
Debt = $160,000,000
Ke = 12.00%
Kd = 7.00%
3. The perpetual growth rate is expected to be 5.00%. What is the value of the financial synergy for moving to the optimal capital structure?
A. $779,534
B. $885,472
C. $909,091
D. None of the above