Question

In: Finance

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?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE


Related Solutions

. X Corporation plans to announce that it will issue $1.6 million of bonds and use...
. X Corporation plans to announce that it will issue $1.6 million of bonds 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 shares 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...
Eilish Inc. plans to announce that it will issue $1.6 millin ofperpetual debt and use...
Eilish Inc. plans to announce that it will issue $1.6 millin of perpetual debt and use the proceeds torepurchase common stock. The bonds will sell at par with a coupon rate of 5%. The company iscurrently all equity and worth $6.1 million with 280,000 shares of common stock outstanding. After the   sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pre-tax earnings of $1.45 million are expected to remain constant in perpetuity. Corp tax rate...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 4 percent annual coupon rate. Green is currently an all-equity firm worth $10 million with 700,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $4 million. This level of earnings is...
Green Manufacturing, Inc., plans to announce that it will issue $7 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $7 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 3 percent annual coupon rate. Green is currently an all-equity firm worth $14 million with 300,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $2 million. This level of earnings is...
Green Manufacturing, Inc., plans to announce that it will issue $2.1 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $2.1 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. Green is currently an all-equity company worth $8.13 million with 500,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The company currently generates annual pretax earnings of $1.6 million. This level of...
Green Manufacturing, Inc. plans to announce that it will issue $3 million of perpetual debt and...
Green Manufacturing, Inc. plans to announce that it will issue $3 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will have a 6-percent annual coupon rate. Green is currently an all-equity firm worth $15 million, with 500,000 shares of common stock outstanding. After the sales of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $3 million. This level of earnings is expected to remain constant...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 3 percent annual coupon rate. Green is currently an all-equity firm worth $14 million with 900,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $5 million. This level of earnings is...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 3 percent annual coupon rate. Green is currently an all-equity firm worth $14 million with 900,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $5 million. This level of earnings is...
Green Manufacturing, Inc. plans to announce that it will issue $3 million of perpetual debt and...
Green Manufacturing, Inc. plans to announce that it will issue $3 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will have a 6-percent annual coupon rate. Green is currently an all-equity firm worth $15 million, with 500,000 shares of common stock outstanding. After the sales of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $3 million. This level of earnings is expected to remain constant...
Green Manufacturing, Inc., plans to announce that it will issue $1 million of perpetual debt and...
Green Manufacturing, Inc., plans to announce that it will issue $1 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 4 percent annual coupon rate. Green is currently an all-equity firm worth $18 million with 700,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $3 million. This level of earnings is...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT