You own a firm, and you want to raise $40 million to fund an expansion. Currently, you
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You own a firm, and you want to raise $40 million to fund an expansion. Currently, you own 100% of the firm’s equity, and the firm has no debt. To raise the $40 million solely through equity, you will need to sell two-thirds of the firm. However, you would prefer to maintain at least a 50% equity stake in the firm to retain control.
a. If you borrow $20 million, what fraction of the equity will you need to sell to raise the remaining $20 million? (Assume perfect capital markets.)
b. What is the smallest amount you can borrow to raise the $40 million without giving up control? (Assume perfect capital markets.)
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Fundamentals Of Corporate Finance
ISBN: 9781292437156
5th Global Edition
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
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