Mini Case Essay

935 words - 4 pages


1. If Stephenson wishes to maximize the overall value of the firm, it should use debt to finance the $45 million purchase. Since interest payments are tax deductible, debt in the firm’s capital structure will decrease the firm’s taxable income, creating a tax shield that will increase the overall value of the firm.

2. Since Stephenson is an all-equity firm with 12 million shares of common stock outstanding, worth $48.50 per share, the market value of the firm is:

Market value of equity = $48.50(12,000,000)
Market value of equity = $582,000,000

So, the market value balance sheet before the land purchase is:

...view middle of the document...


Since Stephenson must raise $45 million to finance the purchase and the firm’s stock is worth $49.53 per share, Stephenson must issue:

Shares to issue = $45,000,000 / $49.53
Shares to issue = 908,492

c. Stephenson will receive $45 million in cash as a result of the equity issue. This will increase the firm’s assets and equity by $45 million. So, the new market value balance sheet after the stock issue will be:

Market value balance sheet |
| Cash | $ 45,000,000 |   | | |
  | Old assets | 582,000,000 |   | | |
  | NPV of project | 12,391,304 |   | Equity | $639,391,304 |
  | Total assets | $639,391,304 |   | Debt & Equity | $639,391,304 |

The stock price will remain unchanged. To show this, Stephenson will now have:

Total shares outstanding = 12,000,000 + 908,492
Total shares outstanding = 12,908,492

So, the share price is:

Share price = $639,391,304 / 12,908,492
Share price = $49.53

d. The project will generate $11 million of additional annual pretax earnings forever. These earnings will be taxed at a rate of 40 percent. Therefore, after taxes, the project increases the annual earnings of the firm by $6.6 million. So, the aftertax present value of the earnings increase is:

PVProject = $6,600,000 / .115
PVProject = $612,391,304

So, the market value balance sheet of the company will be:

Market value balance sheet |
| Old assets | $582,000,000 |   | | |
  | PV of project | 57,391,304 |   | Equity | $639,391,304 |
  | Total assets | $639,391,304 |   | Debt & Equity | $639,391,304 |

Other Essays Like Mini Case

Applied Mini Case Augmented Product Essay

824 words - 4 pages Applied mini case Augmented product and review questions Review questions 2. When is it more appropriate to use a product manager than a marketing manager? When a company offers multiple products to a target market that is similar for each of it is products it is appropriate to use a product manager rather than a marketing manager. This is for example common in the consumer goods sector where companies offer multiple products. In this

Mini- Case Going- Concern Reporting

963 words - 4 pages Mini- Case: Going- Concern Reporting. Refer to the mini-case “GM: Running on Empty” on page C11 and respond to questions 1– 6. 1. Reviewing GM’s financial information in GM Exhibit 1 and its stock price in GM Exhibit 2 , when do you first see signs of GM’s impending financial distress? 2. In referencing professional standards, what factors should auditors consider in evaluating potential going- concern uncertainties? 3. Considering your

Mini-Case 1: Cathy’s Collectibles

642 words - 3 pages Mini-case 1: Cathy’s Collectibles Your cousin Cathy runs a part-time business out of her apartment. She buys and sells collectibles such as antique prints, baseball cards, and cartoon cells and has recently discovered the Web with its many auction sites. She has begun buying and selling on the Web by bidding on collectibles at lesser-known sites and selling them at a profit at more well-known sites. She downloads and uploads lots of graphics

Mini Calcite Jaw Crusher

614 words - 3 pages | Surprising Europe Jaw plate of single toggle mini jaw crusher is also known as tooth plate whose performance and service life are dAlluvial Diamond Mining Equipmentirectly related to the whole performance of single Portable rock crushers power screen you tube - Gulin Jaw Crusher For Sale & Rental – New & Used Jaw Crushers | Rock Search from 1000's of listings for new & used Jaw Crushers for sale or rental updated daily grinding machine

Ipad Mini Consumer Behavior Analysis

2179 words - 9 pages Introduction Our group choose Ipad Mini as the product discussed in the assignment. Ipad Mini is the newly released Ipad of Apple Company which is very special in the Ipad category because it is the first Ipad of only 7.9 inches screen and of the lowest price in Ipad series. Many spectators in the industry regard Ipad Mini as a powerful hit which can greatly expand the potential tablet market (such as female market, lower-ended market) because

Mini Chinastone Manufacturing Line

858 words - 4 pages Mini Cement Manufacturing Line Mini Cement Production Line, Mini Cement . Mini Cement Production Line, You Can Buy Various High Quality Mini Cement Production Line Products from Global Mini Cement Mini Cobalt Ore Manufacturing Line Exportaworld Aworld Home B2B-turkey-Business-to . Turkey Manufacturers, Exporter, Companies, Sellers, Suppliers, Wholesalers, Traders , Exporters to Turkey Mini Moke Electric Car Manufacturing Assemble

Mini Plagioclase Crusher

630 words - 3 pages Portable Plagioclase Crushing Plant « Savetodavni kutak <p>Mini Plagioclase Crusher Manufacturers . 4.8 Copper Ore Mining Crusher Plant In Chile; Open-Pit Portable Jaw Crusher; contact us: 0086-21-58386256</p> Stockhouse-Brazil Iron Ore Crushing machinery Plant Buy Jaw Crusher prices, Machinery Stone Crasher, Mobile stone Small Scale Gold Mini. Plagioclase Impact Crusher machinery Manufacturers. RD Group Industries

Mini Mica Mining Crusher

634 words - 3 pages small mica plant | Crushing & Screening Plants Mica grinding plant, ground mica grinding equipment, wet mica grinding process, … gold small stone crusher; used diesel stone crusher; zambia complete plant crusher; Mica Crusher,mica crushing plant for sale,mica stone Mica crusher is the common Mica mining machinery that used for crushing Micas into small size. In Mica processing plant, ... Stacii Jae Johnson – mini Schist crushing line

Introduction to Mini Research Paper

549 words - 3 pages narcissism among US college students. Their findings support the notion that the Millennials are no more or less narcissistic than previous generations of college students. Paragraph 1 This slide shows the continuation of the literature review. The underlined portion is the transition from the previous idea/study. Alicke et al. (2010) make the case that self-perception is not associated with a broad-based generational characteristic, but

Mini Crushing Plant for Sale in South Africa

676 words - 3 pages stronger hardness in water. Cement mill is utilized for cement grinding. Cement crusher is utilized for cement crushing. In cement mining, you have to decide on suitable cement grinding mill and cement crusher. Mini cement plant Limestone crushing: limestone will be the major raw material for cement making, but given that purely natural limestone is normally huge, we use cement limestone crusher to crush them into tiny particles. Bauxite

Answer Question

1777 words - 8 pages NATIONAL CENTER FOR CASE STUDY TEACHING IN SCIENCE Mini Cases in Psychoactive Drugs and Their Effects on the Brain Scenario #1 by Darlene A. Mitrano Neuroscience Institute Georgia State University, Atlanta, GA Instructions The class will be divided into groups. Each group will be presented with a short scenario describing someone who is abusing a psychoactive drug. After reading this scenario, you and your group need to do the

Related Papers

Mini Case ( Belmont Bank) Essay

677 words - 3 pages Mini Case ( Belmont Bank) Our text book define the Risk assessment as “The process by which one identifies threats, uses a methodology to determine the tangible or intangible exposures, and develops a sequenced list of the threats from the one having the highest risk to the one having the lowest risk”. Belmont State Bank is dealing with financial accounts and transactions that are distributed over hundreds of branches through a central

Week Six Mini Case Essay

591 words - 3 pages C . A. Chapter 10 Mini-Case: I. Cathy’s Collectibles October 8, 2011 The digital subscriber line (DSL) is a family of point-to-point technologies designed to provide high-speed data transmission over traditional telephone lines. The reason for the limited capacity on traditional telephone circuits lies with the telephone and the switching equipment at the end offices. There are many different types of DSL. The most common type of DSL in

Mini Case 1 Essay

911 words - 4 pages Mini Case # 1 Markerting6943 There are various positives and negatives of the different methods of data collection. First I will look at surveys. Surveys have several advantages. First they are an excellent way to gather data from a large number of people. Because of this surveys are relatively cost effective, allowing the surveyor to reach a broad base of consumers. Surveys also tend to be a reliable form of inquiry as they are

Fin 516 Mini Case Essay

1444 words - 6 pages Intermediate Accounting II Mini Case: Starbucks Corporation Select a major industrial or commercial company based in the United States and listed on one of the major stock exchanges in the United States. Each student should select a different company. Avoid selecting an insurance company or a bank, because the financial ratios for these financial businesses are different. Write a seven-to-eight-page double-spaced paper answering and