Problem 16.14 & 16.15 – M&M and Taxes
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
Given EBIT, the interest rate, cost of equity, tax rate, and amount borrowed…
Given EBIT, the interest rate, cost of equity, tax rate, and amount borrowed…
Given the owners’ equity accounts (common stock, capital surplus, retained earnings)… figure out how many new shares there will be along with how the equity accounts change.
GIven the shares of stock outstanding, what the stock sells for per share, stock splits, and stock dividends… figure out the share price and new shares outstanding.
Given the shares outstanding, the market value balance sheet, and declared dividend… figure out stock price today and tomorrow along with the balance sheet after dividends are paid.
Given stock dividend, shares of stock outstanding, and the market value balance sheet…. find the ex-dividend price.
Given the stock dividend, market value, common stock, capital surplus, and retained earnings… figure out the new shares outstanding along with equity accounts.
Given shares owned, dividends received, liquidating dividend paid, required return… find the current share price, number of shares, and cash flow for the first two years.
Given the extra dividend, current earnings, stock price per share, and shares outstanding… figure out the price per share and shareholder wealth using both alternatives then find the effect on EPS and PE ratio.
Given personal tax rates and capital gains tax rates… figure out how much the share price will fall for each.
Determine the following for Little Oil: what rpice will the new shares be issued in year 1, how many shares with the firm need to issue, expected dividend payments on these new shares after year 1, and the present value of cash flows to current shareholders.