Question

Consider the table given below to answer the first question (shares and market values in millions). Number of Shares × Stock Price = Market Capitalization Callaway Golf (ELY) 93.8 × $ 8.76 = $ 821 Alaska Air Group (ALK) 124.7 × $ 80.77 = $ 10,074 Entergy (ETR) 378.5 × $ 75.92 = $ 28,734 Yum! Brands (YUM) 408.7 × $ 77.77 = $ 31,875 General Electric (GE) 9,331.0 × $ 30.34 = $ 283,091 a. The price of Entergy stock has risen to $80. What is the market value of the firm’s equity if the number of outstanding shares does not change? (Enter your answer in billions rounded to 3 decimal places.) b. The rating agency has revised Catalytic Concept’s bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? (Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

a. The price of Entergy stock has risen to $80. What is the market value of the firm’s equity if the number of outstanding shares does not change? (Enter your answer in billions rounded to 3 decimal places.)

Stock Price now, P = $ 80 / share

Number of shares outstanding, N = 378.5 mn

Hence, the market value of the firm’s equity = market capitalization = P x N = 80 x 378.50 = $ 30,280 mn = $ 30.280 bn

Hence, please enter your answer as 30.280 (billions rounded off to three places of decimal)

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b. The rating agency has revised Catalytic Concept’s bond rating to AAA (use Table 2.2). What interest rate, approximately, would the company now need to pay on its bonds? (Enter your answer as a percent rounded to 2 decimal places.)

Interest rate corresponding to the rating of AAA = 2.59%

Please enter your answer as 2.59 (percent rounded to 2 decimal places)