Question
In: Finance
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
Inc., has $2,000,000 of EBIT, which is expected to remain constant
in the future. The company pays out all of its earnings, so
earnings per share (EPS) equal dividends per shares (DPS). Its tax
rate is 40%.
The company is considering issuing $5,000,000 of 10.0% bonds and
using the proceeds to repurchase stock. The risk-free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently 0.90,
but the CFO believes beta would rise to 1.10 if the
recapitalization occurs.
Assuming that the shares can be repurchased at the price that
existed prior to the recapitalization, what would the price be
following the recapitalization?
| a. |
$76.33 |
|
| b. |
$69.23 |
|
| c. |
$80.14 |
|
| d. |
$65.77 |
|
| e. |
$72.69 |
Solutions
jeff jeffy answered 2 years agoRelated Solutions
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
Inc., has $2,000,000 of EBIT, which is expected to remain constant
in the future. The company pays out all of its earnings, so
earnings per share (EPS) equal dividends per shares (DPS). Its tax
rate is 40%.
The company is considering issuing $5,000,000 of 10.0% bonds and
using the proceeds to repurchase stock. The risk-free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently
0.95, but the...
An all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected...
An all-equity firm with 200,000 shares outstanding, Antwerther
Inc., has $2,000,000 of EBIT, which is expected to remain constant
in the future. The company pays out all of its earnings, so
earnings per share (EPS) equal dividends per shares (DPS). Its tax
rate is 40%. The company is considering issuing $5,000,000 of 10.0%
bonds and using the proceeds to repurchase stock. The risk-free
rate is 6.5%, the market risk premium is 5.0%, and the beta is
currently 0.95, but the...
An all-equity firm with 200,000 shares outstanding, has $2,000,000 of EBIT, which is expected to remain...
An all-equity firm with 200,000 shares outstanding, has
$2,000,000 of EBIT, which is expected to remain constant in the
future. The company pays out all of its earnings, so earnings per
share (EPS) equals dividends per share (DPS). Its tax rate is 40%.
The company is considering issuing $5,000,000 of 10% bonds and
using the proceeds to repurchase stock. The risk free rate is 6.5%,
the market risk premium is 5.0%, and the beta is currently 0.90,
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