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Marpor Industries has no debt and expects to generate free cash flows of $14 million

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3. Marpor Industries has no debt and expects to generate free cash flows of $14 million;each year. They believe that if it permanently increases its level of debt to $40 million;the risk of financial distress may cause it to lose some customers and receive less;favorable terms from suppliers. As a result, Marpors expected free cash flow with debt;will only be $13 million per year. Suppose their tax rate is 35%, the risk-free rate is 3%;the expected return of the market is 12%, and the beta of Marpors free cash flows is 1.2;(with or without leverage);a. Estimate Marpor,s value without leverage;b. Estimate marpors value with the new leverage.;4. Suppose the stock of Host Hotels & Resorts is currently trading for $15 per share.;a. if Host issued 20% of stock dividend, what will its new share price be?;b. If Host does a 3:2 stock split, what will its new share price be?;c. If Host does a 1:3 reverse split, what will its new share price be?

 

Paper#33112 | Written in 18-Jul-2015

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