Question

​Zelnor, Inc., is an​ all-equity firm with 90 million shares outstanding currently trading for $10.45 per...

​Zelnor, Inc., is an​ all-equity firm with

90

million shares outstanding currently trading for

$10.45

per share. Suppose Zelnor decides to grant a total of

9

million new shares to employees as part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything. Assume perfect capital markets.

a. If the new compensation plan has no effect on the value of​ Zelnor's assets, what will be the share price of the stock once this plan is​ implemented?

b. What is the cost of this plan for Zelnor​ investors? Why is issuing equity costly in this​ case?

a. If the new compensation plan has no effect on the value of​ Zelnor's assets, what will be the share price of the stock once this plan is​ implemented?

If the new compensation plan has no effect on the value of​ Zelnor's assets, the new share price will be

​$nothing.

​ (Round to the nearest​ cent.)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
d'Anconia Copper is an all-equity firm with 60 million shares outstanding, which are currently trading at...
d'Anconia Copper is an all-equity firm with 60 million shares outstanding, which are currently trading at $20 per share. Last month, d'Anconia announced that it will change its capital structure by issuing $200 million in debt. The $200 million raised by this issue, plus another $200 million in cash that d'Anconia already has, will be used to repurchase existing shares of stock. Assume that capital markets are perfect. Suppose you are a shareholder in d'Anconia Copper holding 500 shares, and...
XYZ, Inc. is an all-equity firm, with 1 million shares outstanding that trade for a price...
XYZ, Inc. is an all-equity firm, with 1 million shares outstanding that trade for a price of $19.95 per share. OPQ, Inc. on the other hand, has 2 million shares outstanding, and $10 million in debt (par value) which currently trade at 110. Assume that both firms have identical assets and identical cash flows. According to the MM Proposition I without tax, what would be the stock price per share for firm OPQ?
Kurz Manufacturing is currently an​ all-equity firm with 22 million shares outstanding and a stock price...
Kurz Manufacturing is currently an​ all-equity firm with 22 million shares outstanding and a stock price of $8.00 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $47 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 35% corporate tax rate.   a. What...
Kurz Manufacturing is currently an​ all-equity firm with 18 million shares outstanding and a stock price...
Kurz Manufacturing is currently an​ all-equity firm with 18 million shares outstanding and a stock price of $ 11.50 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $ 45 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 30 % corporate tax...
Kurz Manufacturing is currently an​ all-equity firm with 30 million shares outstanding and a stock price...
Kurz Manufacturing is currently an​ all-equity firm with 30 million shares outstanding and a stock price of $7.50 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $65 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 21% corporate tax rate.   a. What...
Kurz Manufacturing is currently an? all-equity firm with 29 million shares outstanding and a stock price...
Kurz Manufacturing is currently an? all-equity firm with 29 million shares outstanding and a stock price of $ 7.00 per share. Although investors currently expect Kurz to remain an? all-equity firm, Kurz plans to announce that it will borrow $ 40 million and use the funds to repurchase shares. Kurz will pay interest only on this? debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 30 % corporate tax...
The firm is an all-equity firm with assets worth $512,000 and 64,000 shares outstanding. It plans...
The firm is an all-equity firm with assets worth $512,000 and 64,000 shares outstanding. It plans to borrow $120,000 and use these funds to repurchase shares. The firm’s marginal corporate tax is 21%, and it plans to keep its outstanding debt equal to $120,000 permanently. If the firm plan to repurchase shares at $9 per share, what is the expected per share value of equity for the leveraged firm? Please show your work. A) $8 per share B) $10.45 per...
Witter House is a calendar-year firm with 380 million common shares outstanding throughout 2018 and 2019....
Witter House is a calendar-year firm with 380 million common shares outstanding throughout 2018 and 2019. As part of its executive compensation plan, at January 1, 2017, the company had issued 35 million executive stock options permitting executives to buy 35 million shares of stock for $10 within the next eight years, but not prior to January 1, 2020. The fair value of the options was estimated on the grant date to be $3 per option. In 2018, Witter House...
Toys World is currently an all equity firm that has 1,400,000 shares of stock outstanding with...
Toys World is currently an all equity firm that has 1,400,000 shares of stock outstanding with a market price of $54 a share. The current cost of equity is 10.28 percent and the tax rate is 34 percent. The firm is considering adding $5.8 million of debt with a coupon rate of 6.2 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? $77,643,200 $74,518,000 $71,772,000 $67,298,500 $65,530,000
Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings...
Jackson Software, Inc. is an all-equity firm with 2 million shares outstanding, $6 million in earnings after taxes, and a market value of $100 million. The firm borrows $25 million at an interest rate of 8% and buys back 500,000 shares with the proceeds. The firm's tax rate is 40%. Management does not want the earnings performance to disappoint shareholders and market analysts. What is the maximum interest rate the firm could pay on its new debt so as not...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT