Find the value of the stock per share after this buyback

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Reference no: EM13929575

Belo Horizonte Company plans to buy back 1.5 million shares of its own stock from its cash reserves at $65 a share. There will be no change in the debt of the company. This will increase the bankruptcy costs by $13 million, due to lower cash reserves of the company. Due to share buyback, the debt/assets ratio will go from 33% to 37%. The income tax rate of the company is 30%.

(A) Write two equations representing B/V of the company, before and after the share buyback.

(B) Solve them to find the initial and final value of the company.

(D) Find the value of the stock per share after this buyback. Is the company making the right move?

Reference no: EM13929575

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