1) GenCo paid a dividend of $.32/share last year when they earned $1.27/share. If GenCo can earn 12% after tax on new investments, how fast can GenCoâs net income grow per year over the long term?
2) OldCo repurchased $100 million of their own stock at an average price of $22/share. If OldCo had 50 million shares outstanding before the repurchase and net income of $280 million expected for the next year, what is expected eps
A) before and B) after the share repurchase?
1) GenCo paid a dividend of $.32/share last year when they earned $1.27/share. If GenCo can earn 12% after tax on new investments, how fast can GenCoâs net income grow per year over the long term?
2) OldCo repurchased $100 million of their own stock at an average price of $22/share. If OldCo had 50 million shares outstanding before the repurchase and net income of $280 million expected for the next year, what is expected eps
A) before and B) after the share repurchase?
Related questions
| Tapley Inc. currently has total capital equal to $10 million, has zero debt, is in the 40% federal-plus-state tax bracket, has a net income of $4 million, and pays out 40% of its earnings as dividends. Net income is expected to grow at a constant rate of 5% per year, 240,000 shares of stock are outstanding, and the current WACC is 12.20%. The company is considering a recapitalization where it will issue $5 million in debt and use the proceeds to repurchase stock. Investment bankers have estimated that if the company goes through with the recapitalization, its before-tax cost of debt will be 11% and its cost of equity will rise to 15.5%. What is the stock's current price per share (before the recapitalization)? Round your answer to the nearest cent. Assuming that the company maintains the same payout ratio, what will be its stock price following the recapitalization? Assume that shares are repurchased at the price calculated in Part a. Round your answer to the nearest cent. Do not round intermediate steps. |
