We can now estimate the value of Cooke Company’s stock under each of the alternative capital… 1 answer below »


We can now deem the appreciate of Cooke Company’s accumulation lower each of the opinion principal edifices. Substituting the expected EPS (support 1 of Table 12.13) and the required receipts, ks (support 2 of Table 12.14), into Equation 12.12 for each of the principal edifices, we obtain the distribute appreciates abandoned in support 3 of Table 12.15. Plotting the resulting distribute appreciates over the associated score narrations, as shown in Figure 12.7, evidently illustrates that the culmination distribute appreciate occurs at the principal edifice associated after a while a score narration of 30%.

TABLE 12.15

Calculation of Distribute Value
Estimates Associated after a while
Alternative Principal Structures
for Cooke Company

Capital edifice
score narration

Expected EPS
(from support 1
of Table 12.13)
(1)

Estimated
required retaliate, ks
(from support 2
of Table 12.14)
(2)

Estimated
distribute appreciate
[(1) ÷ (2)]
(3)

0%

$2.40

0.115

$20.87

10

2.55

0.117

21.79

20

2.72

0.121

22.48

30

2.91

0.125

23.28

40

3.12

0.14

22.29

50

3.18

0.165

19.27

60

3.03

0.19

15.95

 

TABLE 12.14

Required Receipts for Cooke
Company’s Alternative
Capital Structures

Capital edifice
score narration

Coefficient of
variation of EPS
(from support 3
of Table 12.13)
(1)

Estimated required
return, ks
(2)

0%

0.71

11.50%

10

0.74

11.7

20

0.78

12.1

30

0.83

12.5

40

0.91

14

50

1.07

16.5

60

1.4

19

 

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TABLE 12.13

Expected EPS, Standard Deviation, and
Coefficient of Variation for Alternative
Capital Structures for Cooke Company

Capital edifice
score narration

Expected EPS
(1)

Standard deviation
of EPS
(2)

Coefficient of
variation of EPS
[(2) x (1)]
(3)

0%

$2.40

$1.70

0.71

10

2.55

1.88

0.74

20

2.72

2.13

0.78

30

2.91

2.42

0.83

40

3.12

2.83

0.91

50

3.18

3.39

1.07

60

3.03

4.24

1.4

 

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