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Fin 3504 - Chapter 16

Autor:   •  November 30, 2016  •  Coursework  •  299 Words (2 Pages)  •  272 Views

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Chapter 16 Mini-Case

1. it is clear that the company performs well with minimal risk, because the company have not used debt in the capital structure for over 25 years. However, making a purchase of $95 million worth of land, the use of debt is most likely to increase the total value of the firm. Therefore, the issue of debt is recommended in order to maximize the total market value.

2. Market value balance sheet before the purchase

Market Value BS

Assets

Amount in ($)

Debt and Equity

Amount in ($)

Assets

$340,200,000

Equity

$340,200,000

Total Assets

$340,200,000

Total Debt and equity

$340,200,000

3.

A. Calculate NPV

     NPV= -$95,000,000 + $110,294,118 = $15,294,118

B. Market value balance sheet after the purchase

Market Value BS

Assets

Amount in ($)

Debt and Equity

Amount in ($)

Assets

$15,294,118

Equity

$15,294,118

Total Assets

$355,494,118

Total Debt and equity

$355,494,118

  • The new price per share= ($355,494,118/$9,000,000) =$39.50
  • Numbers of share to issue= ($95,000,000/$39.50) =$2,405,063

 

 

C. Market Value Balance sheet

Market value balance sheet

Assets

Amount in ($)

Liabilities

Amount in ($)

Cash

95,000,000

Old Assets

340,200,000

NPV of projects

15,294,118

Equity

450,494,118

Total Assets

$450,494,118

Total debt and equity

$450,494,118

...

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