A firm currently has no debt the firm has 10 million

Reference no: EM13618298

A firm currently has no debt. The firm has 10 million shares outstanding and those shares currently have a market price of $30 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to repurchase shares of stock. If they undertake this action, the firm intends to keep this level of debt financing for the foreseeable future.

Assume that the corporate tax rate is 40%. Given this data, if the firm announces that they will sell the bonds and repurchase equity what:

(a) do you expect the stock price to be immediately after the announcement?

(b) will be the firm's total market value of equity immediately after the announcement?

(d) will be the firm's total market value of equity after the bond issue/repurchase are completed?

Reference no: EM13618298

Questions Cloud

Consider an investment in a project having a first cost of : consider an investment in a project having a first cost of 500000 operating and maintenance costs of 35000 per year a

At the beginning of year 1 the companys inventory level was : at the beginning of year 1 the companys inventory level was stated correctly. at the end of year 1 inventory was

Explain how various factors determine the width of : explain how various factors determine the width of confidence intervals. indicate how changes in these factors affect

Calculate a 90 prediction interval for a randomely selcted : calculate a 90 prediction interval for a randomely selcted single indivdual from the popultation. with a sample mean of

A firm currently has no debt the firm has 10 million : a firm currently has no debt. the firm has 10 million shares outstanding and those shares currently have a market

A infinite long cylinders symmetric current distribution : a infinite long cylinders symmetric current distribution with radius r and a total current i gt 0. the distributions

This power cycle produces wcycle1000 w determine the heat : a reversible power cycle operates at steady state between a thermal reservoir at 400 c and another one at 200 c. this

Buckeye corp is currently an all-equity firm with a market : buckeye corp. is currently an all-equity firm with a market value of equity of 100 million. the current expected

It is desired to test whether the number of gamma rays : it is desired to test whether the number of gamma rays emitted per second by a certain radioactive substance is a

User Account

All Pages