Question

Zetatron is an​ all-equity firm with 300 million shares​ outstanding, which are currently trading for $10.91 per share. A month​ ago, Zetatron announced it will change its capital structure by borrowing $650 million in​ short-term debt, borrowing $424 million in​ long-term debt, and issuing $642 million of preferred stock. The $1,716 million raised by these​ issues, plus another $75 million in cash that Zetatron already​ has, will be used to repurchase existing shares of stock. The transaction is scheduled to occur today. Assume perfect capital markets.

a. What is the market value balance sheet for Zetatron

i. Before this​ transaction?

ii. After the new securities are issued but before the share​ repurchase?

iii. After the share​ repurchase?

b. At the conclusion of this​ transaction, how many shares outstanding will Zetatron​ have, and what will the value of those shares​ be?

Account Amount Cash Non-Cash Assets Total Assets Total Liabilities Total Equity S s $ $ $ million (Round to the nearest integer.) million (Round to the nearest integer.) million (Round to the nearest integer.) million (Round to the nearest integer.) million (Round to the nearest integer.)

Answer 1

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PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) View Add-Ins Review - 2x = = V General Wrap Text Merge Merge & Center - Center SF $ 4:0 .00 :.: Insert Delete Format % % , Number File Home Insert Page Layout Formulas Data % Cut Calibri 11 A A = Ea Copy Paste Format Painter BI U D- DA Clipboard Font OL158 fx OJOK OL OM 158 Conditional Format Formatting as Table Styles Cell Styles AutoSum- Fill- Sort & 2 Clear Filter Editing Find & Select Alignment Cells ON 00 OP OQ OR OS OT ou v ow ox - 159 ZETATRON 160 161 162 163 (0) BEFORE THIS TRANSACTION CASH 75 164 165 NON-CASH TOTAL 3198 (BALANCE) 3273 EQUITY TOTAL 3273 [100 X 7.5] 3273 166 167 168 169 170 171 (ii) BEFORE REPURCHASE CASH 1791 (BALANCE) NON-CASH 3198 172 SHORT TERM DEBT LONG TERM DEBT TOTAL LIABILITIES PREFERRED STOCK EQUITY TOTAL EQUITY TOTAL 650 424 1074 642 3273 3915 4989 173 174 175 TOTAL 4989 176 177 R N STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS HIGH LOW TARGET PRICE ferences O (+) Rea 0 price quote EVA MVAT | THE TU 120% = 9 * 10 ENG . B 29-11-2019

- 2x ox PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Σ AutoSum : A Calibri 11 A A = = = V Wrap Text General Ea Copy Fill 2 m Paste BI U D- DA E E E s FMerce Merge & Center - Center $ % % Format Painter , 4.0 .00 :.: Conditional Format Cell Insert Delete Format Sort & Find & Formatting as Table Styles 2 Clear Filter Select Clipboard Font Alignment Number Styles Cells Editing OL196 fx OJOK OL O M O N 00 OP OQ OR OS OT ou OV ow 177 178 SHARES OUTSTANDING 300 MILLION 179 VALUE PER SHARE 10.91 180 AFTER REPURCHASE 181 CASH SHORT TERM DEBT 650 NOTE : CASH OF 1791 182 NON-CASH 3198 LONG TERM DEBT 424 IS USED TO REPURCHASE THE SHARES 183 TOTAL LIABILITIES 1074 184 PREFERRED STOCK 642 185 EQUITY 1482 TOTAL EQUITY 2124 187 TOTAL 3198 TOTAL 3198 188 189 b NO OF SHARES REPURCHASED = 1791/10.91 = 164.16 164.16 ROUNDED TO 2 DECIMAL 190 SHARES OUTSTANDING = 300 - 164.16 = 135.83868 135.84 ROUNDED TO 2 DECIMAL 191 192 PRICE PER SHARE = 1482/135.83868 = 10.91 186 193 VALUE OF SHARES = 1482 194 195 196 197 W Rea STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS HIGH LOW TARGET PRICE ferences 0 + price quote EVA MVAJ B0 120% 9 * 10 . B ENG 29-11-2019

PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) View Add-Ins File Home Insert Page Layout Formulas Data Review - 2x % Cut = = = V General Wrap Text FMerce Merge & Center - Center E E E s $ 4.0 .00 :.: Insert Delete Format % % , Number Conditional Format Formatting as Table Styles Cell Styles AutoSum- Fill - Sort & 2 Clear Filter Editing Find & Select Alignment Cells ON 00 OP O OR OSO OU OVOW OX Calibri 11 A A E Copy Paste Format Painter BI U D- DA Clipboard Font OL205 fx OJ OKOLOM 196 197 CASH 198 NON-CASH ASSETS TOTAL ASSETS 200 201 TOTAL LIABILITIES 202 TOTAL EQUITY 203 204 205 3198 3198 199 1074 2124 206 207 208 209 210 211 212 213 214 215 216 H Rea STOCK DIV NAV HEDGE FUND ME EV PE EPS DIV ABNORMAL deberk MARGIN MONEY marginal tax PB ROPI APV ROSS HIGH LOW TARGET PRICE ferences price quote EVA MVAJ B0 120% 9 * 410 ENG 0 + D O 29-11-2019