Case Renta Corporación (50 points)
Renta Corporación Real Estate, S.A. engages in the acquisition, refurbishment, and sale of real estate properties in the cities of Barcelona and Madrid. The company’s property portfolio comprises residential buildings, offices, and parking spaces, as well as commercial premises and hotels. It serves individuals, companies, institutions, and real estate agents. Renta Corporación Real Estate, S.A. was founded in 1991 and is based in Barcelona, Spain.
Luis Hernández is the Chairman of the company, and owns a 14.55% of the shares outstanding.
Assume the Company is equity financed with 32.08 million shares of stock outstanding, and the stock is traded at 1.41€ per share.
Mr. Hernández would like to purchase an office building that costs 5 Million € and thereafter rent it out to Inditex. The lease will increase the income before taxes in 750 thousand € per year for ever.
The company had no debt at the end of last year, and it´s net income was 10 Million €.
You have calculated that the cost of capital is 13%, while the corporate tax rate is 25. You are considering the possibility to finance the operation by issuing bonds with a 6% coupon rate.
1.-The first thing Mr. Hernández wants to know is if he should issue debt or equity for this investment and why. Mr. Hernández goal is to maximize the market value.
2.- As Renta Corporación is a public company, he would like to know which is the market value balance sheet before the investment in the new project is announced.
3.- If Renta Corp. decides to make the investment 100% with Equity, as Mr. Hernández prefers, what would be the Net Present Value of the project?
4.- Construct the market value balance sheet after equity issue and before announcing the new investment project. How many shares outstanding has the company? and how much is the price per share?
5.- What would be the market value balance sheet after the company announces that the new investment has been done (fully financed by Equity) ? And what would be the price per share?
6.- What will be the Net income for the next year? what will be the EPS? What will be the PE ratio at the end of next year?
7.-What will be the market value of the company if the finally decide to issue debt?
8.- Prepare a balance sheet at market value after the debt is issued and the investment is done, what will be now the value per share? What will be the Net income for the next year? what will be the EPS? What will be the PE ratio at the end of next year?
9.- Which of the alternative do you think would be better for Mr. Hernández, as he is the majority shareholder?
Case Pizza bro´s (50 points)
Pizza brother´s, Inc., through its subsidiaries, operates as a pizza company in the United States and internationally. It operates through three segments: U.S. Stores, International Franchise, and Supply Chain. The company offers pizzas under the Bro´s brand name through company-owned and franchised stores. It also provides oven-baked sandwiches, pasta, boneless chicken and chicken wings, bread and dips side items, desserts, and soft drink products. As of January 2, 2022, the company operated approximately 5 thousand stores in 40 markets. The company was founded in 1990 and is based in Colorado.
For the year 2021 the company presented the following abbreviated results and balance sheet items: (all figures in million €)
Gross Profit 1200
Operating Income 750
Interest expenses 50
Total Assets 2500
Current Liabilities 500
Long term debt 1000
Common stock 500
Retained Earnings 350
Net income 2021 150
The company has 500 thousand shares outstanding at a par value of 1000€.
The market value of the shares today is 7500€
Mr Andersen, who has 10% of the shares is proposing to make a dividend payment in cash for 30 Million
Mrs Bettermore, the CEO, holding 1% of the shares is proposing to make a stock dividend with a value of 30 Million.
You are the CFO of the company, so they are requesting you to prepare:
Balance sheet of the company in the case of Mr Andersen dividend payment
Balance sheet of the company in the case of Mrs Bettermore´s stock dividend.
And you also want to prepare your own proposal buying the company shares for a total amount of 30 Millions.
Calculate number of shares, EPS, PE ratio, Return on sales, ROE, ROA before doing anything, and also after each of the 3 alternatives.
In case you finally choose the option of Mr Andersen, what will be the final market value of the shares if you decide to make a split 2 for 1?