Homework Answers
Value of Equity = Value of Firm - Value of Debt
= [New Debt / wD] - Value of Debt
= [$300 million / (1/3)] - $300 million
= $900 million - $300 million = $600 million
Share price before recap = Value of Equity / No. of shares outstanding
= $900 million / 28 million = $32.14
No. of shares repurchased = Value of Debt / Share price before recap
= $300 million / $32.14 = 9.33 million
Shares outstanding after recap = Shares outstanding before recap - Shares Repurchased
= 28 million - 9.33 million = 18.67 million
Stock Price after recap. = Value of Equity / No. of Shares Outstanding After Recap.
= $600 million / 18.67 million = $32.14
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