How much debt will you need

Assignment Help Finance Basics
Reference no: EM132013922

Question: You are the new CFO of Megasoft. Megasoft has $ 1billion market value. It currently has no debt. Corporate tax rate is 40%. You make a compelling argument to the board that debt will enhance shareholder value.The board authorizes you to issue risk-free debt and buyback some stock using ALL the proceeds of debt. The board wants the post-leverage capital structure to have exactly 20% debt (B/VL=0.2). You will soon make an announcement to the shareholders about your plans to issue debt and buyback some stock.

(a.) How much debt will you need? (Be careful. As soon as the announcement is made, the stock will go up to reflect the benefits of debt. VL=VU+TB. You need enough B to buy back 20% of VL.)?

Reference no: EM132013922

Questions Cloud

What is the present worth for each scenario : A new 2-lanc road is needed in a part of town that is growing. At some point the road will need 4 lanes to handle the anticipated traffic.
Second amendment and support an assault weapon ban : There may be some common ground between the two sides. Is it possible to support the second amendment and support an assault weapon ban?
How much do you think hulu business operations are worth : Netflix, an online video streaming service, has 29 million subscribers. It has 427 million shares outstanding, 2.4 billion in debt, 2.6 billion in cash.
How does the poet make use of the physical description : LCS 352: What is the setting? What is the time and place? How does the poet make use of the physical description? Does it create a mood?
How much debt will you need : You are the new CFO of Megasoft. Megasoft has $ 1billion market value. It currently has no debt. Corporate tax rate is 40%. You make a compelling argument.
Psychoactive drugs during pregnancy : If you were providing treatment to a pregnant mother, what psychoeducational information would you provide her about the risks of drinking alcohol
Development and behavior of children and adolescents : What is the role addiction may play in the development and behavior of children and adolescents?
Explain each and give reasons for your preferred theory : Your new Marketing Director asks for your opinion about which of the two theories, Cognitivism or Behaviourism, is the best approach to understand buyer.
Strength depends on the unity and diversity of people : Respect. "Our community's strength depends on the unity and diversity of our people." , the elderly for a moment.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Which of the following options is most profitable

Which of the following options is most profitable?

  What is the maximum sales growth rate the company

Last year Montero Corporation had $850 million of sales, and it had $425 million of fixed assets that were used at only 60% of capacity. What is the maximum sales growth rate the company could achieve before it had to increase its fixed assets?

  Discuss the random walk hypothesis

Discuss the random walk hypothesis? Does research evidence tend to support or deny the validity of this hypothesis?

  What is the required monthly payment

If the mortgage requires monthly payments over a term of 20 years, with each payment made at the end of the period, what is the required monthly payment?

  Calculation of after tax return

The Omega Company has some excess cash that it would like to invest in marketable securities for a long-term hold. Its vice-president of finance is planning three investments

  What are its interest payments taxable income and income

What are its interest payments, taxable income, tax payments, and income left for shareholders in a no-inflation environment?

  What is the companys simple capital structure

If the total debt-to-equity ratio of a firm is 1.0, what is the company's simple capital structure?

  Calculate expected value of losses and standard deviation

As the risk management of a small chain of restaurants, you are analyzing the losses incurred over the last 10 years. Using these data, calculate the Expected value of losses, Variance, Standard Deviation and Coefficient of Variation.

  What should be the hedge ratio?

What should be the hedge ratio?

  Reduce cost escalation

Identify two strategies health managers can implement to reduce cost escalation. Provide supoort for your strategies.

  Calculate the net present value of the venture

Permanent working capital required at outset, to be restored to cash at the end of the project's life $ 50,000.

  What would be the effective cost of that credit

What would be the effective cost of that credit? Round your answer to two decimal places.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd