Question: Tesaro would like to change its capital structure such that its capital is 80% equity financed and 20% debt financed by issuing debt and

Tesaro would like to change its capital structure such that its capital

Tesaro would like to change its capital structure such that its capital is 80% equity financed and 20% debt financed by issuing debt and using it to buy back equity. The appropriate cost of debt would be 10%. If you have not completed question 4A, please assume an arbitrary number for Tesaro's value to proceed and state your assumption clearly. (i) How much debt should Tesaro issue? (ii) Suppose Tesaro needs to pay a 10% premium on the shares when buying them back. How many can it buy back? (iii) Does it matter for Tesaro's capital structure how many shares it can buy back? Why or why not?

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i To achieve a capital structure of 80 equity and 20 debt we can calculate the debt amount as follows Equity portion 80 of Tesaros value 08 100 millio... View full answer

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