Given the results of Problem 18.2, suppose that the merged firm has 1,000 shares outstanding. Furthermore, suppose

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Given the results of Problem 18.2, suppose that the merged firm has 1,000 shares outstanding. Furthermore, suppose that the shareholders decide to issue $1,000 of new debt (which is not subordinate to outstanding debt), maturing in four years, and invest the proceeds in marketable securities, so that the new value of the merged firm is $5,000. What will be the new price per share? Assume the merged firm's instantaneous variance is unchanged by this investment.
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Financial Theory and Corporate Policy

ISBN: 978-0321127211

4th edition

Authors: Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri

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