The CCG construction company is entirely financed by its own funds. A financial institution has just granted it a $500,000 debt at an interest rate of 4%. The purpose of the debt is to buy back 25,000 shares of the company's outstanding stock (out of a total of 80,000 shares).  

a) Assuming no taxes, calculate the value of CCG after the share buyback.

b) The firm earns a 14% return on assets. If there are no taxes, what will be the required rate of return on equity for CCG?

Answer rating: 100% (QA)

a To calculate the value of CCG after the share buyback we need to subtract the amount spent on the buyback from the total equity of the company The a... View the full answer