Digital Fruit is financed solely by common stock and has outstanding 25 million shares with a market price of $10
Digital Fruit is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds to buy back common stock. There are no taxes.
a. What is the expected market price of the common stock after the announcement?
b. How many shares can the company buy back with the $160 million of new debt that it will issues?
c. What is the market value of the firm (equity plus debt) after the change in capital structure?
d. What is the debt ratio after the change in capital structure?Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
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