Cisoft is a highly profitable technology firm that currently has $S2$ billion in cash. The firm has decided

to use this cash to repurchase shares from investors, and it has already announced these plans to

investors. Currently, Cisoft is an all$-$equity firm with $2$ billion shares outstanding. These shares

currently trade for $$20$ per share. Cisoft has issued no other securities except for stock options

given to its employees. The current market value of these options is $$6$ billion.

a$.$ What is the market value of Cisoft's non$-$cash assets?

b$.$ With perfect capital markets, what is the market value of Cisoft's equity after the share

repurchase? What is the value per share?

Schwartz Industry is an industrial company with $89\mathrm{.}9$ million shares outstanding and a market

capitalization $($equity value$)$ of $$4\mathrm{.}24$ billion. It has $$1\mathrm{.}75$ billion of debt outstanding. Management

has decided to deliver the firm by issuing new equity to repay all outstanding debt.

a$.$ How many new shares must the firm issue?

b$.$ Suppose you are a shareholder holding $100$ shares, and you disagree with this decision.

Assuming a perfect capital market, describe what you can do to undo the effect of this

decision.

Zetatron is an all$-$equity firm with $100$ million shares outstanding, which are currently trading for

$$7\mathrm{.}50$ per share. A month ago, Zetatron announced it will change its capital structure by borrowing

$$100$ million in short$-$term debt, borrowing $$100$ million in long$-$term debt, and issuing $$100$ million

of preferred stock. The $$300$ million raised by these issues, plus another $$50$ million in cash that

Zetatron already has, will be used to repurchase existing shares of stock. The transaction is

scheduled to occur today. Assume perfect capital markets.

a$.$ What is the market value balance sheet for Zetatron

i$.$ Before this transaction?

ii$.$ After the new securities are issued but before the share repurchase?

iii. After the share repurchase?

b$.$ At the conclusion of this transaction, how many shares outstanding will Zetatron have, and

what will the value of those shares be$?$