Assume that your company is an all-equity firm with 5,000,000 shares outstanding. The company's EBIT is...
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Assume that your company is an all-equity firm with 5,000,000 shares outstanding. The company's EBIT is currently $20,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year; its growth is zero, its earnings per share equals its dividends per share, and the company's tax rate is 40. The company is considering issuing $22.0 million worth of bonds (at par) and using the proceeds for a stock repurchase. The firm's cost of this debt (their annual coupon rate) would be 6 percent. The risk-free rate in the economy is 4 percent, and the market risk premium is 10 percent. The company's beta is currently 1.20, but its investment bankers estimate that the company's beta would rise to 1.30 if it proceeds with the recapitalization. Given this information, determine the difference between the final stock prices if the market does anticipate an increase in value versus it does not anticipate an increase in value. Enter your answer in dollars and cents, with no punctuation. For example, if you answer is $8.90, enter "8.90". Assume that your company is an all-equity firm with 5,000,000 shares outstanding. The company's EBIT is currently $20,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year; its growth is zero, its earnings per share equals its dividends per share, and the company's tax rate is 40. The company is considering issuing $22.0 million worth of bonds (at par) and using the proceeds for a stock repurchase. The firm's cost of this debt (their annual coupon rate) would be 6 percent. The risk-free rate in the economy is 4 percent, and the market risk premium is 10 percent. The company's beta is currently 1.20, but its investment bankers estimate that the company's beta would rise to 1.30 if it proceeds with the recapitalization. Given this information, determine the difference between the final stock prices if the market does anticipate an increase in value versus it does not anticipate an increase in value. Enter your answer in dollars and cents, with no punctuation. For example, if you answer is $8.90, enter "8.90".
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