Question

KMS Corporation has assets with a market value of ​$479 ​million, ​$45 million of which are cash. It has debt of ​$200 ​million, and 18 million shares outstanding. Assume perfect capital markets.

a. What is its current stock​ price?

b. If KMS distributes ​$45 million as a​ dividend, what will its share price be after the dividend is​ paid?

c. If​ instead, KMS distributes ​$45 million as a share​ repurchase, what will its share price be once the shares are​ repurchased?

d. What will its new market​ debt-equity ratio be after either​ transaction?

Answer 1

Pg.1 Gr. Cascot Stock Poice Cascot Stock Psic - ASSC is market valul - Debt nomor shares ou Stancing = $1479- 200) 18 = $ 15.5 Current Stock price: $ 15.5 b Jr Disidibute $ 45 millim as a dividend Share Price ariex dividend paid Stock price = assets market - Debt 1. Vale Nol of shares our standing When 845 million were distributed as dividend Such amount wouid bc reduced room Total vallue of assets assets value after dividend = $1479-45) di stoi bution =434

pg.2 Stock Price – 81434-200) 18 = $13 distribution New Stock price att Stock Price aftex Dividend will be $ = 13 per share. į kms Distributes $45 million as shares when kms Distributes $45 million as Share purchase Nol of Shares outstanding on be oed uced NOlof Shares Purchased -4.45 15.5 - 2.90 Millioo Sharks. New Stock price = $(434 – 200) (18-2.90 = $ 234 15.1 $15.99 = $15.50 Stock price after Share purchase will be = $15.50 New

Debt Equity Ratio Debt Equity Ratio - Debt Debt Equity was Equity Debt Equity Ration in Siluvation - a Equity = Stock price x Dolor Sharus = $L 1550X118-2-90) = $(15.50 X 15:10) = $ 234.05 Equity = $ 234.05 million Debt = $ 200.00 Million Debl Equity 3 200 234.05 = 0.855 times