Question
In: Finance
Taunton's is an all-equity firm that has 152,500 shares of stock outstanding. The CFO is considering...
Taunton's is an all-equity firm that has 152,500 shares of stock outstanding. The CFO is considering borrowing $251,000 at 7 percent interest to repurchase 21,500 shares. Ignoring taxes, what is the value of the firm? $1,865,127 $2,191,199 $1,780,349 $2,034,684 $2,300,758
Solutions
Expert Solution
Price per share
= Total Borrowing /Number of shares repurchased
= 251,000 /21,500 = $ 11.67441860
Total Equity = (Shares outstanding-Shares repurchased) * Price per share
= (152,500 -21,500 )*11.67441860
= $1529348.84
Now, Debt = $ 251,000
Value of the firm = Equity Value+Debt Value
= 1529348.84 + 251,000
= 1780348.84
Value of the firm = 1780349
Hence option c is correct.
jeff jeffy answered 2 years agoRelated Solutions
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