Suppose your target companed embarked on an aggressive expansion that requires a

Question

Suppose your target companed embarked on an aggressive expansion that requires additional capital. Management decided to finance the expansion by issuing a bond and by halting dividend payments to increase retained earnings. You can find the bond details, WACC, and the projected free cash flows in 317.Dataset_3 1) What is Bon Temps's total value? If it has 14.0 million shares of stock and $35.7 million of debt and preferred stock combined, what is the price per share? 2) stock price After you finished your model, the company announced a secondary equity offering of 1,002,900 shares of common stock, at a price to the public of $11.87 per share. How will this affect the stock price? What is the capital gain yield? 3) stock price CG-Yield

Explanation / Answer

1 Year Cash flow Discount rate @ 14% Present Value 1 20 0.8772 17.5439 2 15 0.7695 11.5420 3 20 0.6750 13.4994 4 20*(1.0260)/(0.14-0.026) = 180 0.6750 121.5 164.0853 Total Value = $ 164.09 2 Value of Equity = Total Value - Value of debt and preferred stock 164.09-35.7 128.39 Price per share = 128.39/14 $9.17 3 No of shares would be (14000000+1002900) 15002900 Price per share = 128390000/15002900 8.56 Capital gain yield =(11.87-8.56)/8.56 38.67%

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