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A company plans to announce that it will issue $1.6 million of perpetual debt and use...
A company plans to announce that it will issue $1.6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 6%. The company is currently all equity and worth $6.1 million with 280,000 share of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pretax earnings of $1.45 million are expected to remain constant in perpetuity. The tax rate is 21% a. What is the expected return on the company equity before the announcement of debt issue? b. What is the company stock price per share immediately after the repurchase announcement? c. How many shares will the company repurchase because of the debt issue? How many shares of common stock will remain after repurchasing? d. What is the required return on the company equity after restructuring?
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jeff jeffy answered 1 year agoRelated Solutions
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