Question
The LUV Company has 3 million shares of common stock outstanding at a book value of $3 per share. The stock trades for $4.00 per
The LUV Company has 3 million shares of common stock outstanding at a book value of $3 per share. The stock trades for $4.00 per share. It also has $3 million in face value of debt that trades at 80% of par. The company has no other important sources of financing (i.e, no bank debt or preferred stock.) What is its appropriate debt ratio (D/V) to use when calculating the WACC?
A. 8.3%
B. 16.7%
C. 20.0%
D. 21.1%
Open Door Corporation has $3 Million in earnings on $20 million in sales and has 1 million shares outstanding. Earnings per share of comparable firm 1 is $5 and earnings per share of comparable firm 2 is $2. Comparable firm 1's stock is trading for $50 and comparable firm 2's stock is trading for $28. What is the estimated stock price of open door using the method of comparables?
A. $33.43
B. $36.00
C. $39.00
D. $40.00
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