Unnamed Inc. is considering changing its capital structure. Currently, the company has no debt and has 8,000,000 shares outstanding. The company has an unlevered cost of equity of 12% and an annual EBIT of $62,500,000. He's considering a $250 million permanent loan. If the company issues the debt, the interest rate will be 3%. The loan will be given on par. Proceeds from the debt issuance would be used to buy back shares in the company. The corporate tax rate is 40%.

9. What is the present value of Unnamed Inc. as a wholly equity firm? 

10. After the loan is issued and the shares are repurchased, what will be the required rate of return for the company's equity and WACC, respectively? 

11. What will be the stock price of the firm after the debt issuance but before the shares are bought back? 

Answer rating: 100% (QA)

9 current value of Unnamed Inc EBIT 1 tax unlevered cost of equity 62500... View the full answer