An unlevered firm with a share price of $80, market value of $8 million, and 100,000...

An unlevered firm with a share price of $80, market value of $8 million, and 100,000 shares outstanding announces that $5 million of perpetual debt will be issued and the proceeds will be used to repurchase an equal value of equity shares. The firm's tax rate is 40%. How many shares will be repurchased?"

50000

62500

40000

60000

45500

Expert Solution

Please upvote if the ans is helpful. Thanks.

jeff jeffy answered 1 year ago

3. A firm is initially unlevered and the market value of its equity is $800 million....

3. A firm is initially unlevered and the market value of its equity is $800 million. The firm is planning to issue $250 million of perpetual debt and repurchase equity of an equal amount. The corporate tax rate is 20%. Assume that there are no costs of financial distress and that the discount rate for the interest tax shields is equal to the cost of debt. Remarks: i. Assume the EBIT each year will be high enough so the 30...

ZZZ is an unlevered company with a current market capitalization of $4 million. The firm is...

ZZZ is an unlevered company with a current market capitalization of $4 million. The firm is considering a leveraged recapitalization that would involve taking on long-term debt and using the proceeds to buy back shares . The company's CFO has put together the following table with regards to the use of various debt levels in the firm’s capital structure: Amount of Debt Present value of tax shield Present value of financial distress costs $1,000,000 $210,000 $139,500 $1,500,000 $315,000 $175,250 $2,000,000...

An unlevered firm has a value of $900 million. An otherwise identical but levered firm has...

An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $70 million in debt at a 4% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 11%. After Year 1, free cash flows and tax savings are expected to grow at a constant rate of 3%. Assuming the corporate tax rate is 25%, use the compressed adjusted present value model to determine the value of the levered firm....

Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $80,...

Dinklage Corp. has 8 million shares of common stock outstanding. The current share price is $80, and the book value per share is $7. The company also has two bond issues outstanding. The first bond issue has a face value of $75 million, a coupon of 9 percent, and sells for 95 percent of par. The second issue has a face value of $45 million, a coupon of 10 percent, and sells for 108 percent of par. The first issue...

A firm has 5 million shares outstanding with a market price of $35 per share. The...

A firm has 5 million shares outstanding with a market price of $35 per share. The firm has $15 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.23 million should be entered as 1.23, not 1,230,000. Round your answer to two decimal places....

Greenwich Company is an unlevered firm with a total market value of $25,600,000 with 1,200,000 shares...

Greenwich Company is an unlevered firm with a total market value of $25,600,000 with 1,200,000 shares of stock outstanding. The firm has expected EBIT of $1,800,000 if the economy is normal and $2,650,000 if the economy booms. The firm is considering a $5,000,000 bond issue with an attached interest rate of 6.2 percent. The bond proceeds will be used to repurchase shares. Ignore taxes. What will the earnings per share be after the repurchase if the economy booms? $2.30 $2.67...

A firm has a current book value per share of $21.10 and a market price per...

A firm has a current book value per share of $21.10 and a market price per share of $37.57. Next year's earnings are expected to be $5.60 per share and the expected earnings growth rate is 2.5 percent. What is the required rate of return on this stock? A. 14 percent B. 15 percent C. 16 percent D. 17 percent E. 18 percent

There is an industry with 5 firms. There is one large firm with 80% market share,...

There is an industry with 5 firms. There is one large firm with 80% market share, three medium-sized firms with 6% market share, and one small firm with 2% market share. Calculate the Herfindahl-Hirschman Index (HHI) for this industry. Please show your work. Is this industry either highly concentrated, moderately concentrated, or not concentrated? There is an industry with 5 firms. There is one large firm with 80% market share, three medium-sized firms with 6% market share, and one small...

The price in a perfectly competitive market is $8. At that price, a firm is willing...

The price in a perfectly competitive market is $8. At that price, a firm is willing to supply 250 of a good. The firm's average total cost (ATC) to supply this quantity will be $6.5 and its average variable cost (AVC) will be $5. What is the firm's Total Cost? A. 1750 B. 2125 C. 1625 D. 2000 E. 1500 F. 1875

Company A has a market value of equity of $2,000 million and 80 million shares outstanding....

Company A has a market value of equity of $2,000 million and 80 million shares outstanding. Company B has a market value of equity of $400 million and 25 million shares outstanding. Company A announces at the beginning of 2019 that is going to acquire Company B. The projected pre-tax gains in operating income (in millions of $) from the merger are: 2019 2020 2021 2022 2023 Pre-tax Gains in Operating Income 12 16 28 38 45 The projected pre-tax...

Question