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What is share price lf company does not issue debt

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Reference no: EM132665625

Company is about to launch a new product. Depending on the success of the new product, Company  may have one off our values next year: $150 million, $135 million, $95 million, or $80 million. These outcomes are all equally likely, and the risk of the project is diversifiable.

Suppose has 10 million shares outstanding and no debt at the start of the year.

Problem 1) lf Company does not issue debt, what is its share price?

Problem 2) lf Company issues debt of$ 100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part (1)?

Reference no: EM132665625

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