Question
In: Accounting
a. An all-equity company ABC has nine million outstanding shares, with a share price currently at...
a. An all-equity company ABC has nine million outstanding
shares, with a share price currently at £55. The company also has
outstanding debt valued at £75 million. Equity cost of capital is
6.5%. The company has made an announcement of issuing new debt
valued at £210 million. The proceeds of this issue will be used to
repay outstanding debt and to pay out an immediate dividend. Assume
capital markets are perfect.
Required:
i. What is the share price just after the announcement, before the
issue takes place? [2 marks]
ii. Based on the market-value balance sheet, calculate the price of
the share when the announced transaction is carried out. [5
marks]
iii. Assume that the existing outstanding debt bears no risk and
has an expected return of 4.75%. Also assume that the new debt
bears risk and has an expected return of 6%. Calculate the equity
cost of capital after the announced transaction is carried out. [5
marks]
part iii) pls
Solutions
ekkarill92 answered 1 year agoRelated Solutions
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Company x AB has 10 million shares of equity outstanding. The current share price is 50...
Company x AB has 10 million shares of equity outstanding. The
current share price is 50 SEK, and the book value per share is 5
SEK.
The company also has two bond issues outstanding. The first bond
issue has a face value of 100Million SEK (MSEK) and a 10 per cent
annual coupon payment , sells for 90 per cent of par (face value of
1,000SEK), and matures in 1 year.
The second issue has a face value of £60...
Company Jedi AB has 10 million shares of equity outstanding. The current share price is 50...
Company Jedi AB has 10 million shares of equity outstanding. The
current share price is 50 SEK, and the book value per share is 5
SEK.
The company also has two bond issues outstanding. The first bond
issue has a face value of 100Million SEK (MSEK) and a 10 per cent
annual coupon payment , sells for 90 per cent of par (face value of
1,000SEK), and matures in 1 year.
The second issue has a face value of £60...
Company Jedi AB has 10 million shares of equity outstanding. The current share price is 50...
Company Jedi AB has 10 million shares of equity outstanding. The
current share price is 50 SEK, and the book value per share is 5
SEK.
The company also has two bond issues outstanding. The first bond
issue has a face value of 100Million SEK (MSEK) and a 10 per cent
annual coupon payment , sells for 90 per cent of par (face value of
1,000SEK), and matures in 1 year.
The second issue has a face value of £60...
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