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Calculate the share price of bravos after the levered

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Reference no: EM132741536

Problem 1: Bravos currently has a share price of $35 and 20 million shares outstanding. In addition, the firm currently has $120 million in debt and no excess cash. The firm is planning on conducting a levered recapitalization. As part of this transaction, the firm plans on issuing an additional $100 million of debt in the form of a perpetual bond to repurchase shares (i.e. the full $100 million will be paid out to shareholders by repurchasing shares). The cost of debt on the perpetual bond will be 5.5%. Bravos has an unlevered cost of capital of 12% and a marginal corporate tax rate of 20%. Using the APV method, calculate the share price of Bravos after the levered recapitalization.

Select one.

I. $35

II. $30

III. $36

IV. $31

Reference no: EM132741536

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