Talmart was an all-equity firm with an EBIT of $75,000 per year that is expected to...

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Talmart was an all-equity firm with an EBIT of $75,000 per year that is expected to stay the same for the foreseeable future. Your research had shown that the beta equity of Talmart was 2.00 and it had 20,000 shares outstanding. Talmart has however recently issued a bond yielding 7.50% with a market value of $250,000 and will use these funds to buy back shares (a fairly common practice). Talmart also plans to retain $250,000 of debt financing in perpetuity. What will Talmart's new share price be? Suppose the expected return on the market is 10% and the risk free rate is 5%. For this question, assume taxes are zero. (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) 25 Correct Response This is an intuitive and simple question on the effects of leverage on share value in a world without taxes. Can be figured out by calculating the answer as well. Talmart was an all-equity firm with an EBIT of $75,000 per year that is expected to stay the same for the foreseeable future. Your research had shown that the beta equity of Talmart was 2.00 and it had 20,000 shares outstanding. Talmart has however recently issued a bond yielding 7.50% with a market value of $250,000 and will use these funds to buy back shares (a fairly common practice). Talmart also plans to retain $250,000 of debt financing in perpetuity. What will Talmart's new share price be? Suppose the expected return on the market is 10% and the risk free rate is 5%. For this question, assume taxes are zero. (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.) 25 Correct Response This is an intuitive and simple question on the effects of leverage on share value in a world without taxes. Can be figured out by calculating the answer as well.

Answer rating: 100% (QA)

Calculating Talmarts New Share Price with Leverage Given information EBIT75000 constant Beta equity2... View the full answer