Question

Defense Inc has an EV of $200 million, debt of $50 million and a cash balance...

Defense Inc has an EV of $200 million, debt of $50 million and a cash balance of $20 million. It currently has a levered beta of 1.50. It is considering using the cash to buy back its shares. Estimate the levered beta after the share buyback transaction. (The marginal tax rate is 20%).
Select one:
A. 1.82
B. 1.54
C. 1.51
D. 1.12

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Correct answer: B. 154

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

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
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt...
Lister Inc. is a small, publicly traded data processing company that has $200 million in debt outstanding, in both book value and market value terms. The book value of equity in the company is $400 million and there are 40 million shares outstanding, trading at $20/share. The current levered beta for the company is 1.15 and the company’s pre-tax cost of borrowing is 5%. The current risk-free rate in US $ is 3%, the equity risk premium is 5% and...
Hank Fine Steakhouse has a long-term debt with a market value of $100.56 million and has...
Hank Fine Steakhouse has a long-term debt with a market value of $100.56 million and has outstanding 15.60 million shares with a market price of $10 a share. It now announces that it intends to issue a further $55.44 million of debt and to use the proceeds to buy back common stock. Debtholders, seeing the extra risk, mark the value of the existing debt down to $60 million. With the new issued debt, how many shares can Hank buyback? (in...
Lockheed Martin Inc. a U.S. defense contractor producing ballistic missile defense systems, distributed dividends of $10...
Lockheed Martin Inc. a U.S. defense contractor producing ballistic missile defense systems, distributed dividends of $10 per share in 2019 on earnings per share of $15 per share. The book value of equity per share was $200, and earnings are expected to grow at a constant rate of 1% a year forever. The stock has an unlevered beta of 1.00, a debt to equity (D/E) ratio of 40%, and is currently trading at $150 per share. The current risk free...
AMC Corporation currently has an enterprise value? (EV) of $390 million and $100 million in excess...
AMC Corporation currently has an enterprise value? (EV) of $390 million and $100 million in excess cash. The firm has 20 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share? repurchase, news will come out that will change? AMC's enterprise value to either $590 million or $190 million. What is? AMC's share price after the repurchase if its enterprise value goes? up? What is? AMC's share price after the repurchase if...
You are valuing Soda City Inc. It has $150 million of debt, $70 million of cash,...
You are valuing Soda City Inc. It has $150 million of debt, $70 million of cash, and 200 million shares outstanding. You estimate its cost of capital is 8.0%. You forecast that it will generate revenues of $740 million and $760 million over the next two years. Projected operating profit margin is 40%, tax rate is 20%, reinvestment rate is 60%, and terminal exit value multiple at the end of year 2 is 8. What is your estimate of its...
Regal Cinemas owns movie complexes and has 80 million shares trading at $25/share and $300 million...
Regal Cinemas owns movie complexes and has 80 million shares trading at $25/share and $300 million in debt. Its current equity beta (levered) is 1.25 and it plans to raise fresh equity and retire all of its debt. If it does so and the marginal tax rate is 40%, what will its beta be after the transaction? a. 2.25 b. 0.85 c. 1.55 d. 1.15
You are valuing Soda City Inc. It has $110 million of debt, $90 million of cash,...
You are valuing Soda City Inc. It has $110 million of debt, $90 million of cash, and 140 million shares outstanding. You estimate its cost of capital is 12.4%. You forecast that it will generate revenues of $700 million and $800 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 20%, and the tax rate is 30%. Each year, deprecation is $4mm and capital expenditures including the...
You are valuing Soda City Inc. It has $111 million of debt, $86 million of cash,...
You are valuing Soda City Inc. It has $111 million of debt, $86 million of cash, and 161 million shares outstanding. You estimate its cost of capital is 11.9%. You forecast that it will generate revenues of $709 million and $791 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 24%, tax rate is 28%, reinvestment rate is 29%, and terminal EV/FCFF exit multiple at the end...
You are valuing Soda City Inc. It has $132 million of debt, $77 million of cash,...
You are valuing Soda City Inc. It has $132 million of debt, $77 million of cash, and 182 million shares outstanding. You estimate its cost of capital is 9.8%. You forecast that it will generate revenues of $726 million and $774 million over the next two years, after which it will grow at a stable rate in perpetuity. Projected operating profit margin is 33%, tax rate is 24%, reinvestment rate is 46%, and terminal EV/FCFF exit multiple at the end...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT