Question

At the end of 2011, 40% of CARE Software, Inc.'s $1 million in total assets were...

At the end of 2011, 40% of CARE Software, Inc.'s $1 million in total assets were debt-financed. The company's cost of debt was 6 percent, and its cost of equity was 12 percent.2011 EBIT was $200,000, and is expected to remain constant. Income was taxed at 40 percent. The 50,000 shares of common stock outstanding had a year-end 2011 book value of $12.00 per share. The dividend payout ratio was 100%.Calculate the intrinsic value of a share of stock.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer:- Intrinsic value is $17.60.

Calculations

Total Assets = $1000000

Debt(40%of total assets)= $400000

Cost of debt = 6%

Interest amount (400000*6%)= $24000

EBIT 200000
Internet (24000)
EBT 176000
Tax@40% (70400)
Earnings for equity share holders 105600
No of equty share holders 50000

Earnings per share

(Earnings for eq sh holders/no of eq sh holders)

 2.112 per share
Dividend payout ratio

100%

So dividend per share= 2.112 (EPS*100%)

Cost of equity = 12%

So the Vlaue of equity share= Dividend per share/cost of equity

Value of share= 2.112/.12= $17.60

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
At the end of 2011, 40% of CARE Software, Inc.'s $1 million in total assets were...
At the end of 2011, 40% of CARE Software, Inc.'s $1 million in total assets were debt-financed. The company's cost of debt was 6 percent, and its cost of equity was 12 percent.2011 EBIT was $200,000, and is expected to remain constant. Income was taxed at 40 percent. The 50,000 shares of common stock outstanding had a year-end 2011 book value of $12.00 per share. The dividend payout ratio was 100%.Calculate the intrinsic value of a share of stock. A...
Use the following information to estimate the intrinsic value of VIM’s common stock using the residual...
Use the following information to estimate the intrinsic value of VIM’s common stock using the residual income model: VIM had total assets of $ 3,000,000, financed with twice as much debt capital as equity capital. VIM’s pre-tax cost of debt is 6 percent and cost of equity capital is 10 percent. VIM had EBIT of $300,000 and was taxed at a rate of 40 percent. EBIT is expected to continue at $300,000 indefinitely. VIM’s book value per share is $...
2. XYZ has total assets of $3,000,000 financed by debt of $2,000,000 and equity capital of...
2. XYZ has total assets of $3,000,000 financed by debt of $2,000,000 and equity capital of $1,000,000. The pretax cost of debt is 6% and the cost of equity capital is given at 10%. XYZ has pretax income (before deduction of interest expense) of $300,000 and is taxed at 40%. Calculate residual income in year 1 (after deducting an equity charge). 3. Same facts as problem 2. XYZ is expected to earn pretax income (before deduction of interest expense) of...
Coin Flip Co. has total assets of $8 million, total short- and long-term debt of $4.8...
Coin Flip Co. has total assets of $8 million, total short- and long-term debt of $4.8 million, and $650,000 worth of 9% preferred stock outstanding. What is the firm’s total book value? What would its book value per share be if the firm had 50,000 shares of common stock outstanding? Ben’s Burgers is trading at $23 per share. There are 390 million shares outstanding. What is the market capitalization of this company? The MedTech Company recently reported net profits after...
Common stock:   1 million shares outstanding, $40 per share, $1 par value, beta = 0.8 Preferred...
Common stock:   1 million shares outstanding, $40 per share, $1 par value, beta = 0.8 Preferred stock:   200,000 shares outstanding, $44 per share, $3.50 per share annual dividend Debt: 10,000 bonds outstanding, $1,000 face value, 8% coupon, 20 yrs to maturity, price = 112% of par Other: Market return = 14.6%, risk-free rate = 6%, company tax rate = 28% What is this company's WACC? A. 8.67% B. 10.67% C. 12.33% D. 9.50% E. 7.33%
Consider the following information about Truly Good​ Coffee, Inc.: Total assets ($millions)   178 Total debt ($millions)  ...
Consider the following information about Truly Good​ Coffee, Inc.: Total assets ($millions)   178 Total debt ($millions)   86 Preferred stock ($millions)   17 Common stockholders' equity ($millions)   75 Net profit after taxes ($millions)   14.1 Number of preferred stock outstanding (millions)   0.9 Number of common stock outstanding (millions)   9 Preferred dividends paid (per share)   2.14 Common dividends paid (per share)   0.78 Market price of the preferred stock ($/per share)   24.64 Market price of the common stock ($/per share)   19.61 . Use the information...
FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity...
FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 40 percent debt. Currently, there are 5,500 shares outstanding and the price per share is $52. EBIT is expected to remain at $19,100 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. a. Melanie, a shareholder of the firm, owns 270 shares of stock. What is her cash flow under...
XYC Inc. has 5 million shares of common stock outstanding. The current share price is $40....
XYC Inc. has 5 million shares of common stock outstanding. The current share price is $40. The company also has one bond issue outstanding and the bond market value is $300 million. The yield to maturity of this bond is 8%. For the common stock, the most recent dividend was $2 and the dividend growth rate is 8 percent. Assume that the tax rate is 30 percent. What is the cost of common stock? (5 points) What is the after-tax...
Current Information (All Equity firm) Common stock outstanding 100,000 shares EBIT $200,000 Tax 40% Dividend policy...
Current Information (All Equity firm) Common stock outstanding 100,000 shares EBIT $200,000 Tax 40% Dividend policy 100% payout ratio Cost of equity: Risk-free rate 3.00% Market return 12.00% Stock Beta 1.10 Recapitalization Exercise: Company to issue $100,000 bonds with 10% interest and proceeds use to retire common stock. Assume market is in equilibrium, stocks can be repurchased at pre-recapitalization price. What is the price after re-capitalization?
Ford Motors is in this situation: EBIT = $ 180 million Tax rate, T = 40%...
Ford Motors is in this situation: EBIT = $ 180 million Tax rate, T = 40% Outstanding debt = 100 million rd = 11.3% rs = 15.7% Outstanding shares = 800,000 Book value per share = $ 100 All profits are distributed in dividend form. Debt is made up of perpetual bonds. 1. What is Ford Motor's earnings per share (DFL) and price per share (PO) amount? 2. Calculate Ford Motor's WACC.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT