Question
In: Finance
**********Please show your work for ******* Rally, Inc., is an all-equity firm with assets worth $21...
**********Please show your work for *******
Rally, Inc., is an all-equity firm with assets worth $21 billion and 9 billion shares outstanding. Rally plans to borrow $12 billion and use funds to repurchase shares. Rally's corporate tax rate is 35% , and Rally plans to keep its outstanding debt equal to $12 billion permanently.
a. Without the increase in leverage, what would be Rally's share price?
b. Suppose Rally offers $2.58 per share to repurchase its shares. Would shareholders sell for this price?
c. Suppose Rally offers $2.91 per share, and shareholders tender their shares at this price. What will be Rally's share price after the repurchase?
d. What is the lowest price Rally can offer and have shareholders tender their shares? What will be its stock price after the share repurchase in that case?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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Assets
Liabilities and Owner’s
Equity
A/P
$60,000
LT Debt
100,000
Total Debt
160,000
CS, par
2,000
PIC
50,000
R/E
50,000
Total Equity
$102,000
Total Liabilities and Owners Equity
$262,000
Cash
$1,000
A/R
6,500
Inventory
62,500
Prepaids
12,000
Fixed Assets
250,000
Accum Depreciation
(70,000)
Total Assets
$262,000
Sales
$800,000
COGS
370.000
Gross Profit
430,000
Operating Exp.
-170,000
Depreciation
-10,000
EBIT
250,000
Interest
-10,000
EBT
240,000
Taxes
-80,000
Net Income
$160,000
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(s)
Position
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V(instantaneous)
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0
10.0
0.25
13.0
0.50
16.5
0.75
21.0
1.00
26.5
1.25
32.3
1.50
38.0
1.75
44.5
2.00
52.0
2.25
60.0
2.50
68.5...
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