A Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the

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A Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that A has a 100% payout rate, 5,000 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. A is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%. Assume that the tax rate is 0%. If A goes ahead with the repurchase, then what is the value of the company after the repurchase is complete?

Posted Date: Dec 05, 2021 02:55 AM

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A Electronics Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the

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Value of the company after the buy back is 12000 Before repurchase t... View the full answer

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