Finance Cas Study - 664 Words

Lesson 7 case study extra credit 1. If Stephenson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. If Stephenson wants to maximize its total market value it should use debt to finance the $100 million dollar purchase. By using the debt to finance it will decrease the overall taxable income the company reports. Since interest payments are tax deductible it will create a tax break for the company which will increase the overall total value of Stephenson Real Estate. 2. Construct Stephenson’s market value balance sheet before it announces the purchase. Stephenson has 15 million shares of common stock at $32.50 per share. The market value of the†¦show more content†¦100,000,000/33.83 = 2,955,956 c. Construct Stephenson’s market value balance sheet after the equity issue, but before the purchase has been made. How many shares of common stock does Stephenson have outstanding? What is the price per share of the firm’s stock? Balance sheet after equity issue Old Assets $487,500,000 Debt 0 Cash 100,000,000 Equity $607,500,000 NPV 20,000,000________________________________________________ Total assets $607,500,000 Total debt and equity $607,500,000 Shares outstanding = 15,000,000 + 2,955,956 = 17,955,956 shares outstanding Stock price per share = 607,500,000/17,955,956 = $33.83 it remains the same. d. Construct Stephenson’s market value balance sheet after the purchase has been made. PV= 15,000,000/0.125 = $120,000,000 Balance sheet after purchase Old Assets $487,500,000 Debt 0 PV 120,000,000 Equity $607,500,000 Total assets $607,500,000 Total debt and equity $607,500,000 4. Suppose Stephenson decides to issueShow MoreRelatedMgec61 Note - Chapter 13 Essay1022 Words   |  5 PagesMGEC61 – International Economics: Finance Introduction ï‚ · International finance is a study of problems and policies of an open economy. ï‚ · International finance studies the issues like unemployment, savings, trade imbalances, money and price levels (include exchange rates). Organization of the course 1) Introduction – chapter 13 2) Interest rate parity (how exchange rate is determined by the flows of capital) and exchange rate overshooting – chapters 14 15 3) Purchasing power parity and theRead MoreA Complex Adaptive System ( Cas )1198 Words   |  5 Pagescharacterized by a Complex Adaptive System (CAS). 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