South Side Corporation has no debt outstanding, a total value of assets of $500,000, a total market value of the firm of $300,000, a market-to-book ratio of 1.0, a dividend payout ratio of 100 percent, and a corporate income tax rate of 40 percent. Earnings before interest and taxes are expected to be $45,000 per year forever. South Side is considering a $210,000 debt issue with an 8 percent interest rate. If issued, the proceeds from this debt would be used to repurchase shares of common stock and the bankruptcy tax rate will be 25 percent. There are currently 3,000 shares of common stock outstanding. Assume that South Side goes through with the recapitalization.

Analysts project the following free cash flows for the next three years after which free cash flows will grow at a constant growth rate of 5 percent per year. The company’s cost of capital is 12 percent per year. Suppose the company has $20 million in marketable securities, $50 million in debt, and 4 million shares of stock outstanding. What is the current price per share?

Question 30 options:

$72.98

$57.70

$45.20

$50.20

$102.33

Answer rating: 100% (QA)

The answer is 10233 Explanation Total assets 5000... View the full answer