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Item $4$

Problem $6-12$

An all$-$equity business has $160$ 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?