You are the acting Chief Financial Officer of Oracle Corporation. A number of financial opportunities have been presented and you are looking for the best plan to continue growing your market cap. Please use the dated Value Line provided for answering the following questions. Please disregard any current information you are familiar with about Oracle when doing this analysis.
a) The CEO of Oracle has come to you and has suggested a preferred stock offering to allow for continued growth of Oracle’s wireless networking ideas. You need to determine what adding an additional $500 million would do to the capital structure of Oracle? Current debt costs 7.5%, equity costs 12.14%, and preferred stock would cost 10.11 percent. Current weights for debt are 3% and for common stock is 97%. Weights would become approximately 3%, 5% for preferred and 92% for common. The wireless internet investment has an internal rate of return of about 22% per year.
b) Suppose Oracle is attempting to purchase Peoplesoft. Peoplesoft is trading at $15.25 per share. Oracle offered $19.50 per share. Given the current price listed, what is the ratio of exchange?
c) Given the P/E ratio, the book value, and beta considerations as set forth on the Value Line provided, is stock over-priced, underpriced, or just right? Should they be paying a dividend? What information is not provided that would help with this decision?
d) IBM has made a tender offer for Oracle of $21.00 per share. What issues should be looked at when considering this offer?
Please rererence the below value line info - Please advised if I missed imporntant info. I cannot seem to upload the Line Sheet.
Recent Price 27.93
P/E Ratio 11.5 (trading 11.7/Median 17.0)
Relative P/E Ratio 0.75
DIV'D YLD 0.9%
Book Value per share 14.00
Average P/E Ratio 15.0
Beta .95