A film is all equility with 2000 shares outstanding worth $175 each.Management of the film is planning

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A film is all equility with 2000 shares outstanding worth $175 each.Management of the film is planning on issuing $100000 of new perpetual debt at the 5% market rate of interest and use the amount to repurchase shares. The effective tax rate is 25%.

A: What is the change in total equity value if they make debt for equity exchange?

B: What is the stock price at which shares will be repurchased? How many shares will be repurchased? Please assume that the market is effoient.

C: Suppose the perpetual ESIT is $50000 then what is the weighted average cost of capital for the unlevered form?

Related Book For answer-question

Advanced Financial Accounting

ISBN: 978-0137030385

6th edition

Authors: Thomas Beechy, Umashanker Trivedi, Kenneth MacAulay

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Posted Date: May 03, 2023 12:15 AM

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A film is all equility with 2000 shares outstanding worth $175 each.Management of the film is planning

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A The change in total equity value can be found using the formula Equity Value Value of Equity before Transaction Value of Equity after Transaction Be... View the full answer

Advanced Financial Accounting

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