Company X has an all common equity capital structure. Pertinent financial characteristics are:
Shares of common stock outstanding 1,000,000
Common stock price P0 = $22 per share
Expected level of EBIT = $4,750,000
Dividend payout ratio = 100 percent
Question 1: Under the current capital structure, determine the total value of firm?
Question 2: Determine the cost of common equity capital, Kc? Compute the composite cost of capital K0 ?
Question 3: If company X sells $1 million in long term debt with interest rate of 9%. And proceeds are utilized to retire outstanding common stock. According to NOI theory (independence hypothesis), determine the firm's cost of equity after structural charge?
What will dividend per share flowing to firm's common shareholders?
By what percentage has dividend per share changed owing to capital structure change?
By what percentage has cost if common equity changed owing to capital structure change?
Determine the composite cost of capital after capital structure change be?