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1. Greenwave, Inc., went public 5 years ago and has had no
further equity issuance (or repurchases of equity). The firm has
the following current balances for its book value of equity:
Par Value ($2.00 par value per share)$350,000Capital in Excess
of Par$0Retained Earnings$7,800,000a. From this information, can we
tell how many shares are outstanding for this firm and the price
that these shares were sold to the public? If so, calculate these
two items. If not, tell me what additional information you need to
know.b. What is Greenwaves Book Value Per Share?c. Can the
Greenwaves market value per share be calculated using the above
information? Explain why or why not.d. Calculate what the new Book
Value Per Share would be if the firm decided to issue another
40,000 shares at $20 per share.
2. Pretend that it is now January 1, 2009. Clamato, Inc. has
issued cumulative preferred stock with an annual 10% dividend and a
par value of $25 per share. They also have common stock outstanding
that has historically paid a $0.06 per share dividend.
a. How many dollars are expected to be paid out as a preferred
stock dividend (per share) in 2009?b. Suppose that next year (2010)
that Clamato experiences some cash flow problems and for the first
time ever, the company decides not to pay their preferred and
common stock dividends. One year later, (2011), the firm wishes to
pay a $0.07 per share common stock dividend. How much will the
company pay to an investor that holds one share of common stock and
one share of preferred stock in 2011?c. If the investor is a U.S.
individual with a large ownership in Clamato, Inc., what percent of
the preferred stock dividend will be taxable, according to the U.S.
tax code?d. If the investor is a U.S. corporation with a small
ownership in Clamato, what percent of the preferred stock dividend
will be taxable, according to the U.S. tax code?
3. Firenze, Inc. is an all-equity firm that has 500,000 shares
of stock outstanding. The company has decided to borrow $8 million
at 9% interest to repurchase 200,000 shares of outstanding
stock.
a. Suppose that Firenze operates without taxation (or financial
distress). What is the value of this firm in its current all-equity
state. What will the firms value be after the recapitalization?
b. Under MMI, in a world with no taxes (nor financial distress),
would the value of the levered firm above (i.e. Firenze with $8
million of debt after the recapitalization) increase or decrease if
only $4 million was borrowed to buy back 100,000 shares of stock?
Explain your answer.
4. Ignore taxes and financial distress for this question.
Suppose that your firm has a debt-equity ratio of 0.75, a cost of
debt of 8.5%, and an unlevered cost of equity of 15%.
If you want to get customized help regarding any assignment from
our experts, Please contact us @ www.assignmentconsultancy.com or
mail us to [email protected] provide services for
all the assignments such asPortfolio Management Assignment,
Valuation Analysis, DCF Valuation, Discounted Cash Flow, Time value
of money, capital formation, equity valuation, dividend discount
model, cash flow analysis, valuation of the firm through free cash
flow, bond valuation, techniques of project evaluation, like net
present value and internal rate of return, Short rate model,
Financial capital, Financial modeling, Financial Analysis,
Financial Accounting, financial forecasting, understanding of
company and its future.
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