Question Details

What will the intrinsic per share stock price be immediately after the repurchase 



 .	Norton Electrical has quite a few positive NPV projects from which to choose. The problem is that it has more of these projects than it can finance without issuing new stock and the board of directors refuses to issue any new shares in the foreseeable future. Norton- projected net income is $150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%.  The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy.  Versus the current policy, how much larger could the capital budget be if (1) the target debt ratio were raised to 75%, other things held constant, (2) the target payout ratio were lowered to 20%, other things held constant, and (3) the debt ratio and payout were both changed by the indicated amounts.
								
		Increase in Capital Budget				
		Increase Debt to 75%	Lower Payout to 20%	
Do Both				
	a.	$114.0 	$73.3 	$333.9 				
	b.	$120.0 	$77.2 	$351.5 				
	c.	$126.4 	$81.2 	$370.0 				
	d.	$133.0 	$85.5 	$389.5 				
	e.	$140.0 	$90.0 	$410.0 				
						

 .	The following data apply to Garber Industries, Inc. (GII):
								
								
	Value of operations		$1,000 			
	Short-term investments		$100 			
	Debt		$300 			
	Number of shares		     100 			
								
	The company plans on distributing $50 million as dividend payments. What will the intrinsic per share stock price be immediately after the distribution?
								
	a.	$6.32						
	b.	$6.65						
	c.	$7.00						
	d.	$7.35						
	e.	$7.72						
			

 .	The following data apply to Elizabeth- Electrical Equipment:
								
								
	Value of operations		$20,000 			
	Short-term investments		$1,000 			
	Debt		$6,000 			
	Number of shares		     300 			
								
								
	The company plans on distributing $50 million by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase ?
								
	a.	$47.50						
	b.	$50.00						
	c.	$52.50						
	d.	$55.13						
	e.	$57.88						



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