A company currently has no debts. The company has 10 million shares outstanding, and those shares currently have a market price of $30 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to buy back shares. If they take this action, the company intends to maintain this level of debt financing for the foreseeable future. Suppose there are no taxes. Given these data, if the company announces that it will sell the bonds and repurchase the shares, which: 

(a) do you expect the stock price to be immediately after the announcement? 

(b) what will be the total market value of the company's stock immediately after the announcement? 

(c) do you expect the share price to be after the bond issue/repurchase is complete? 

(d) what will be the total market value of the company's shares after the bond issue/repurchase is complete?

Answer rating: 100% (QA)

Lets analyze the effects of the bond issuance and share repurchase on the companys stock price and market value step by step Given data Number of shar... View the full answer