How will a buyback of shares provide a “quick fix” for EPS (earning per share)? A buyback allows companies to invest in themselves. By reducing the number of shares outstanding on the market‚ buybacks increase the proportion of shares a company owns. Buybacks can be carried out in two ways: 1. Shareholders may be presented with a tender offer whereby they have the option to submit (or tender) a portion or all of their shares within a certain time frame and at a premium to the current market price
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Company to make their next investment. William Wrigley Jr. Company is the biggest chewing gum manufacturer in the world and it has no debt yet. Aurora Borealis is trying to convince Wrigley to do a leveraged recapitalization through a dividend or share repurchase. So Wrigley has to make decisions on whether or not to borrow $ 3 billion for recapitalization. Question Based on the above situation‚ there are few questions
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1.) How does Midland determine that shares are undervalues? Midland Energy Resources determine that the shares are undervalued with a comparing from the intrinsic value of the shares and the actual stock price. The intrinsic value can be computed with the fundamental value of the enterprise minus the market value of debts divided per the number of shares outstanding. For calculate the fundamental value of the enterprise‚ Midland Energy Resources has to sum up all discounted future net cash flows
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the firm’s stock price‚ cost of capital‚ debt coverage‚ earnings per share and voting control. The impact of these changes from the capital restructuring should be analysed to confirm that they are improving the value of the company and that they align with the company’s goals and strategic direction. Share Value When a firm goes through recapitalisation‚ the share value of the firm is affected. The effects on the share value depend on the type of recapitalisation undertaken. In the case
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following has a negative impact on the share price? A. Unexpected dividend increase B. Unexpected dividend initiation C. Unexpected dividend decrease D. None of the above Level of difficulty: Medium Solution: C 6. Which of the following statements regarding motivation for a stock repurchase is wrong? A. Firms could be privatized using stock repurchases. B. Investors consider a firm’s stock overvalued when a stock repurchase occurs. C. Firms use stock repurchase to move capital structure back
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BUSS384 - Corporate Finance - Problem Set #1 Due by Wednesday‚ 15 October 2014 1. [10 points] Sydney Industries‚ Inc.‚ is considering a new project that costs $30 million. The project will generate after-tax (year-end) cash flows of $8 million for five years. The firm has a debt-to-equity ratio of 0.25. The cost of equity is 12 percent and the cost of debt is 7 percent. The corporate tax rate is 40 percent. It appears that the project has the same risk of the overall firm. Should Sydney undertake
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1. In what ways can Susan Collyns facilitate the success of CPK? a. The avoidance of CPK management to putting any debt in its Balance sheet which relates to the idea of maintaining the borrowing ability needed to support CPK’s expected growth trail but Collyn is convinced with the benefits of leveraging the CPK’s equity; b. Maintain the ASAP restaurants where brand extensions of the company are being disposed. The ASAP restaurants in airport locations numbered 16 and contributed to the revenue and
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or: Ex-dividend price = $24.00 – 1.40 Ex-dividend price = $22.60 4. a. The shares outstanding increases by 10 percent‚ so: New shares outstanding = 30‚000(1.10) New shares outstanding = 33‚000 New shares issued = 3‚000 Since the par value of the new shares is $1‚ the capital surplus per share is $41. The additional capital surplus is therefore: Capital surplus on new shares = 3‚000($41) Capital surplus on new shares = $123‚000 The new equity account balances will be: Common stock ($1 par value)
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The two primary reporting alternatives Alcoa has in accounting for the repurchase of the shares include converting to treasury stock or formally retiring stock (Spiceland‚ Sepe‚ Nelson & Thomas‚ 2016). With either choice‚ the total shareholders’ equity would be equivalent: the cash and shareholders’ equity would decrease since cash is paid to repurchase the stock. By changing it to treasury stock‚ the cost is reported as a decrease in total shareholders’ equity. The purchase of the treasury stock
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Miller wanted to decide whether or not to let the takeover happen or to repurchase Steinberg’s stock. If the repurchase was to occur‚ Miller had to present to the shareholders at what price to make the repurchase. Miller should repurchase Steinberg’s shares to prevent the takeover and continue the legacy of Walt Disney. In the details provided below‚ we will further discuss the details as to why Miller should repurchase the stock and at what price. Starting as just an in-home studio film
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