ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is...
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ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,666,667 shares outstanding. The riskfree rate in the economy is 2.0 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1,50. And, of course, the tax rate is 40%. Currently, your company has $30,000,000 in perpetual debt outstanding. Your company has decided to issue new equity and use the proceeds to retire all of the debt (at par). When your company announced the debt retirement, the stock price reacted appropriately. Your company then issued the equity and retired the debt as planned. By how much did the price per share of your company's equity drop based on this transaction? You should use all M&M assumptions for this answer. Answer in X.XX format, with no punctuation, rounded up. For example, if your answer is $2.053. enter "2.06 ents Assume an M&M world with taxes. Your company's EBIT is currently $12,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,666,667 shares outstanding. The riskfree rate in the economy is 2.0 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1,50. And, of course, the tax rate is 40%. Currently, your company has $30,000,000 in perpetual debt outstanding. Your company has decided to issue new equity and use the proceeds to retire all of the debt (at par). When your company announced the debt retirement, the stock price reacted appropriately. Your company then issued the equity and retired the debt as planned. By how much did the price per share of your company's equity drop based on this transaction? You should use all M&M assumptions for this answer. Answer in X.XX format, with no punctuation, rounded up. For example, if your answer is $2.053. enter "2.06
Expert Answer:
Answer rating: 100% (QA)
To determine the drop in the price per share of the companys equity based on the debt retirement and equity issuance we can use the ModiglianiMiller M... View the full answer
Related Book For
Financial Management Theory and Practice
ISBN: 9780176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
Posted Date:
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