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Reacher Technology's EBIT was $40 million last year and is not expected to grow (g=0) and...

Reacher Technology's EBIT was $40 million last year and is not expected to grow (g=0) and pays out 100% of earnings as dividends annually. The firm is currently financed with all equity and it has 10 million shares outstanding and is considering recaptizing its equity with debt where new debt would be issued and proceeds used to buyback stock. Show the firm's market value of operations, MV of debt, MV of equity, shares outstanding, and stock price for each level of debt the firm is considering.
EBIT= $       40.00 FCF=
Debt/Value WACC MV MV of Debt MV of Equity #Shares Stock
Price
0% 10
10%
20%
30%
40%
50%
60%
70%

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Expert Solution

because of infusion of cheaper debt in capital structure, WACC is rising but value of equity goes high

jeff jeffy answered 1 year ago
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