Capital Structure, Corporate Finance

Assignment Help:
A leveraged recap, in which Midco would issue debt and use the proceeds to repurchase shares. A Midco industry has 20 million shares outstanding with market price of $15 per share and no debt. The firm has had consistently stable earnings and pays a 35% tax rate. Midco’s investment bankers proposed that the firm borrow $100 million on a permanent basis through a leveraged recap in which it would use the borrowed funds to repurchase outstanding shares.

1. What are the tax consequences of the recap?
2. Based only on the tax effects and the Valuation Principle, what will the total value of the firm be after the recap?
a) How Mach of the new value will be equity?
b) How much will be debt?
3. At what price should Mitco be able to repurchase its shares?
4. Who benefit from the recap, who loses?
5. What other costs or benefits of the additional leverage should Midco’s managers consider?
6. If Midco’s managers decide to issue the debt and distribute the tax shield as the special dividend instead of repurchasing shares, what will the dividend per share be?

Related Discussions:- Capital Structure

Mr. Sears, Can you hepl me with financial a accounting assignment?

Can you hepl me with financial a accounting assignment?

Agency conflic, how would the concept of economic value added reduce the pr...

how would the concept of economic value added reduce the problem of agency conflict

Financial modelling, Financial Modelling Read carefully the case notes ...

Financial Modelling Read carefully the case notes overleaf. Factor models on explaining firm's returns in a credit risk context. Is the usual one-factor model good enough?

RISK, Calculate arithmetic returns and risk-premium of stocks. Describe the...

Calculate arithmetic returns and risk-premium of stocks. Describe the stock market behavior. Calculate expected return, variance and standard deviation for individual stocks and po

Multinational business finance, 1- Suppose that on January 1st the annual c...

1- Suppose that on January 1st the annual cost of borrowing in Swiss Francs is 5%. The spot rate of USD on January 1st is CHF/USD0.98. Six month forward rate was quoted as CHF/USD

Capital Structure, A leveraged recap, in which Midco would issue debt and u...

A leveraged recap, in which Midco would issue debt and use the proceeds to repurchase shares. A Midco industry has 20 million shares outstanding with market price of $15 per share

evaluate the critical success factors, 1)   Select an organization that yo...

1)   Select an organization that you are familiar with and evaluate the steps needed to  transform  the business plans into Balance Score Cards & Key Performance Indicators 2)

Replacement decisions , Your boss is trying to figure out when to replace a...

Your boss is trying to figure out when to replace an important piece of machinery in your main production facility.  The Siemens NR550, costs $5.45 million brand new and generally

Preview division - forecasting methods, Preview division divides M proporti...

Preview division divides M proportional to preview demand, i.e., each SKU n 2N gets fraction This method is included because it is used by the case company, in combination

Write Your Message!

Captcha
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