1. X Corporation plans to announce that it will issue $1.6 million of bonds and use...

1. 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 tax rate is 21%. (8 points) a. What is the expected rate of return on the company’s equity before the announcement? (8 points) b. What is the price per share of X’s equity before the announcement? (8 points) c. What is the price per share of X’s equity immediately after the announcement? (8 points) d. What is the market value of X’s equity immediately after the actual debt issue and repurchase? (8 points) e. What is required rate of return on equity (cost of equity) after the capital structure restructuring?

Expert Solution

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

jeff jeffy answered 1 year ago

. 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...

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....

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...

24. Stock Value and Leverage. Green Manufacturing, Inc.,plans to announce that it will issue $1.6 million of...

24. Stock Value and Leverage. Green Manufacturing, Inc.,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 an annual coupon rate of 6 percent. The company is currently an all-equity firm worth $7.7 million with 260,000 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 $1.86 million. This level of...

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...

2. Green Manufacturing, Inc., plans to announce that it will issue $2,000,000 of perpetual bonds and...

2. Green Manufacturing, Inc., plans to announce that it will issue $2,000,000 of perpetual bonds and use these funds to repurchase equity. The bonds will have a 6-percent coupon rate. Green manufacturing currently is an all-equity firm. The current value of Green’s equity is $10,000,000 and there are 500,000 shares outstanding. After the sale of bonds and share repurchase, Green will maintain the new capital structure indefinitely. Under its current capital structure the expected annual pretax earnings for Green are...

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...

Question