Workshop 1) Suppose GoodBuy must pay corporate taxes at a 30% rate on the interest it will earn from the one-year Treasury bill paying 1.85% interest. Would pension fund investors (who do not pay taxes on their investment income) prefer that GoodBuy use its excess cash to pay the $375,000 dividend pension fund will receive in each case? immediately or retain the cash for one year? What would be the amount that the 2) Suppose that bobcat, INC currently has S5M in excess cash available to repurchase stock or pay dividends on its 1M shares. Suppose Bobcat decides to use the $5M to repurchase shares on the open market. How will the purchase affect the share price if the current stock price is $252, represent this in a balance sheet format. 3) Chronicle is an all-equity firm with 50 million shares outstanding. Chronicle has $75 million in cash and expects future free cash flows of $30 million per year. the cash to expand the firm's oper $36 million per year. If the cost of capital of Chronicle's investments is 12%, how would a decis Management plans to use ations, which will in turn increase future free cash flows to ion to use the cash for a share repurchase rather than the expansion change the share price? 4) Metronic firm has $70M in equity and S30M in debt and forecasts $14M in net income for the year. It currently pays dividends equal to 20% of its net income. You are analyzing a potential change in payout policy-an increase in dividends to S30% of net income. How would this change affect your internal and sustainable growth rates? 5) Exhibit A has the information about the change in production volume of sales for a company. This company will pay dividends on earnings of 20%, using the percent of sales rnethod: a. What would be the inventory for 2023? b. What would be the new financing every year? (assuming that the new financing is coming from the existing equity holders) c. What would be the new financing for 2019 if the payout policy is 30% dividends? 6) Exhibit B has the Balance Sheet and Income Statement projections for a specific company. The company is evaluating if it is worth it to have the capital investment as show in the Capital Investment Sheet. The EBITDA multiplier of similar companies is 9. The debt used has a coupon of 6.8%. Answer these questions: a. b. c. What is the continuation value of the firm? What is the present value of the interest tax shield? What is the value of the firm if the WACC is 10% and should they take the project? Workshop 1) Suppose GoodBuy must pay corporate taxes at a 30% rate on the interest it will earn from the one-year Treasury bill paying 1.85% interest. Would pension fund investors (who do not pay taxes on their investment income) prefer that GoodBuy use its excess cash to pay the $375,000 dividend pension fund will receive in each case? immediately or retain the cash for one year? What would be the amount that the 2) Suppose that bobcat, INC currently has S5M in excess cash available to repurchase stock or pay dividends on its 1M shares. Suppose Bobcat decides to use the $5M to repurchase shares on the open market. How will the purchase affect the share price if the current stock price is $252, represent this in a balance sheet format. 3) Chronicle is an all-equity firm with 50 million shares outstanding. Chronicle has $75 million in cash and expects future free cash flows of $30 million per year. the cash to expand the firm's oper $36 million per year. If the cost of capital of Chronicle's investments is 12%, how would a decis Management plans to use ations, which will in turn increase future free cash flows to ion to use the cash for a share repurchase rather than the expansion change the share price? 4) Metronic firm has $70M in equity and S30M in debt and forecasts $14M in net income for the year. It currently pays dividends equal to 20% of its net income. You are analyzing a potential change in payout policy-an increase in dividends to S30% of net income. How would this change affect your internal and sustainable growth rates? 5) Exhibit A has the information about the change in production volume of sales for a company. This company will pay dividends on earnings of 20%, using the percent of sales rnethod: a. What would be the inventory for 2023? b. What would be the new financing every year? (assuming that the new financing is coming from the existing equity holders) c. What would be the new financing for 2019 if the payout policy is 30% dividends? 6) Exhibit B has the Balance Sheet and Income Statement projections for a specific company. The company is evaluating if it is worth it to have the capital investment as show in the Capital Investment Sheet. The EBITDA multiplier of similar companies is 9. The debt used has a coupon of 6.8%. Answer these questions: a. b. c. What is the continuation value of the firm? What is the present value of the interest tax shield? What is the value of the firm if the WACC is 10% and should they take the project
