Juukan Mining is currently an all-equity corporation worth $4.5 billion with 320 million shares outstanding. The expected return on its equity is 12%. The company has announced that it will issue $950 million in debt costing 4% per year and buy back shares (recapitalizing). Assuming perfect capital markets: 

a) How many shares will the company repurchase?

 b) What is the expected return of Juukan stock after the recapitalization? Now suppose that capital markets are not perfect and that Juukan pays 40% corporate taxes. 

c) How many shares will the company repurchase?

Answer rating: 100% (QA)

a To determine how many shares Juukan Mining will repurchase we first need to calculate the amount of funds it will have available for repurchasing sh... View the full answer