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Author Question: Derek's Dinghies and Rafts (DDR) is the world's largest manufacturer of rowboats and rafts. At the ... (Read 73 times)

SAVANNAHHOOPER23

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on: Apr 25, 2021
Derek's Dinghies and Rafts (DDR) is the world's largest manufacturer of rowboats and rafts. At the end of the current year, analysts expect DDR's EBIT to be $2M and they expect the same earnings annually in perpetuity. DDR's shareholders require a return of 12.5% and there are 5M common shares outstanding. DDR has debt with a total face value of $5M. The bonds have an annual coupon of 3%, are rated AAA and yield 3%. The CFO of DDR believes that the company is under-levered. To increase the leverage, the CFO proposes to repurchase 1.2M shares at a price of $1.25 per share. The repurchase will be financed by additional borrowing. The corporate tax rate is 40%. What is the value of the company prior to the repurchase, and what is the stock price after the repurchase?
◦ Value (prior) = $9.6M; Stock price (after) = $1.50
◦ Value (prior) = $9.6M; Stock price (after) = $1.14
◦ Value (prior) = $13.9M; Stock price (after) = $2.10
◦ Value (prior) = $11.6M; Stock price (after) = $1.14
◦ Value (prior) = $11.6M; Stock price (after) = $3.21
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Marked as best answer by SAVANNAHHOOPER23 on Apr 25, 2021

jomama

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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SAVANNAHHOOPER23

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Reply 2 on: Apr 25, 2021
Gracias!

Dominic

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Reply 3 on: Yesterday
Excellent

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