3) A CFO of a company with a market capitalization of $1B. The firm has 148 million shares outstanding, so the shares are trading at $12.23 per share. Each existing shareholder is sent one right for every share he or she owns. The CFO has not decided how many rights he will require to purchase a share of new stock. He will require either 3 rights to purchase one share at a price of $8.06 per share, or 4 rights to purchase two new shares at a price of $7.37 per share. How much money will the first approach raise?
a) A CFO of a company with a market capitalization of $1B. The firm has 117 million shares outstanding, so the shares are trading at $10.05 per share. Each existing shareholder is sent one right for every share he or she owns. The CFO has not decided how many rights he will require to purchase a share of new stock. He will require either 2 rights to purchase one share at a price of $6.46 per share, or 5 rights to purchase two new shares at a price of $7.4 per share. How much money will the second approach raise?
b) Suppose ABC firm is considering an investment that would extend the life of one of its facilities for 5 years. The project would require upfront costs of $9.13M plus $28.35M investment in equipment. The equipment will be obsolete in (N+2) years and will be depreciated via straight-line over that period (Assume that the equipment can’t be sold). During the next 5 years, ABC expects annual sales of 76M per year from this facility. Material costs and operating expenses are expected to total 33M and 6.43M, respectively, per year. ABC expects no net working capital requirements for the project, and it pays a tax rate of 40%. ABC has 72% of Equity and the remaining is in Debt. If the Cost of Equity and Debt are 14.12% and 4.89% respectively, Compute NPV (Evaluate the project only for 5 years)
