Pesca dos A ores is a fishing company in the Isle of A ores . It has
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Question:
Pesca dos Aores is a fishing company in the Isle of Aores It has million shares
outstanding with a market price of per share and no debt. Pesca dos Aores has had
consistently stable earnings, and pays a tax rate. Management plans to borrow
billion on a permanent basis through a leveraged recapitalization in which they would use
the borrowed funds to repurchase outstanding shares. Disregard any costs of financial
distress for this question, ie you can consider they are always zero.
a What is the present value of debt tax shields created by the leveraged
recapitalization operation?
marks
b What is the share price, number of shares outstanding, market value of equity,
market value of debt and the enterprise value before the announcement of the
recapitalization?
marks
c What is the share price, number of shares outstanding, market value of equity,
market value of debt and the enterprise value after the announcement of the
recapitalization, but before the company issues debt?
marks
d What is the share price, number of shares outstanding, market value of equity,
market value of debt and the enterprise value after the issuance of debt, but before
the company uses the borrowed funds to buy back shares?
marks
e What is the share price, number of shares outstanding, market value of equity,
market value of debt and the enterprise value after the company uses the borrowed
funds to buy back shares?
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
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