An all-equity business has 150 million shares outstanding selling for $20 a share. Management believes that...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
An all-equity business has 150 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion d. Assume now that the recap increases total firm cash flows, which adds $200 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion An all-equity business has 150 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion d. Assume now that the recap increases total firm cash flows, which adds $200 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. Market value of the firm Market value of equity billion billion
Expert Answer:
Posted Date:
Students also viewed these finance questions
-
Your home business uses 570 square feet of your 2,850 square foot home. If household expenses for the year were $28,558, how much was alloted to your business? Amount invested
-
Air at 15 8C and a relative humidity of 70% enters a mixing chamber at a flow rate of 80m3/min. Another flow of air at 40 8C and a relative humidity of 30% enters at a flow rate of a) 40m3/min, b)...
-
When we want to add three numbers, say \(a+b+c\), we don't bother inserting parentheses because \((a+b)+c=a+(b+c)\). But with powers, this is not true \(-\left(a^{b} ight)^{c}\) need not be equal to...
-
Which of the following is accurate concerning the auditor responsibilities in the performance of preliminary engagement activities? (a) The auditor team leader must conduct the quality control for an...
-
Alana Inc. operates a retail operation that purchases and sells home entertainment products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The...
-
hi how did they get these answers please explain Question 13.1.7 Question Help V O Cuisine World Inc. is a Canadian controlled private corporation (CCPC) that operates a retail business selling...
-
Windsor's wants to encourage an electric vehicle research centre to locate in the city. The centre would be a non-profit organization and therefore would not pay taxes. Another community has offered...
-
For a payroll application such as MYOB, what are three recommendations of actions (raise, create, reduce, and eliminate - blue ocean strategy) that could be taken to improve this mobile app service....
-
A & B in 2019 budgeted a net income after tax rate of 30% amounting to P1,680,000. Fixed costs for the year are estimated to be P2,100,000 and contribution margin is estimated to be 20% of sales...
-
Data for the computation of total intangible assets follow: Deposits with advertising agency which will be used to promote goodwill P 45,000 Organization costs 50,000 Unamortized bond discount...
-
Vernon Company is considering investing in two new vans that are expected to generate combined cash inflows of $28,000 per year. The vans' combined purchase price is $92,000. The expected life and...
-
What two groups maintain legislative liaison offices within their organizations that serve as the formal point of contact between DoD and the Appropriations Committees in the House and Senate?
-
Prepare a production budget from the following information presented by Oman trading Co. LLC for products "P" and "Q" for the first quarter of 2021 Calculate the cost of each unit of product "A" and...
-
In Problems, solve each system of equations. x + 2y + 3z = 5 y + 11z = 21 5y + 9z = 13
-
Herbalife Ltd: has a subsidiary in Spain, Herbalife International Espafia, S.A., whose functional currency is the euro. Relevant translated data for the subsidiary appear below. Required a. Calculate...
-
Oliver Corporation decided on January 1, 2017, that its Canadian subsidiary's functional currency is the Canadian dollar rather than the U.S. dollar. On that date, the net assets of its Canadian...
-
The Thode Company established a wholly-owned subsidiary in Saudi Arabia on January 1, 2016, when the exchange rate was \($0.30/riyal\) (SAR). Of Thode's initial SAR200,000,000 investment, SAR...
Study smarter with the SolutionInn App