Radnor Technologies has 30 million shares outstanding trading at $20 per share. The firm is currently...

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Radnor Technologies has 30 million shares outstanding trading at $20 per share. The firm is currently unlevered, but management plans to borrow $200 million on a permanent basis at a 5% interest rate and use the borrowed funds to repurchase outstanding shares. Pre-announcement, the equity cost of capital is 10%. a) In a world without taxes, how many shares will they repurchase? What will be the expected return on the levered equity? b) If instead corporate taxes are 35%, how many shares will they repurchase? Radnor Technologies has 30 million shares outstanding trading at $20 per share. The firm is currently unlevered, but management plans to borrow $200 million on a permanent basis at a 5% interest rate and use the borrowed funds to repurchase outstanding shares. Pre-announcement, the equity cost of capital is 10%. a) In a world without taxes, how many shares will they repurchase? What will be the expected return on the levered equity? b) If instead corporate taxes are 35%, how many shares will they repurchase?

Answer rating: 100% (QA)

a In a world without taxes the number of shares Radnor Technologies will repurchase can be determined using the ModiglianiMiller MM irrelevance theore... View the full answer