Question

Zetatron is an​ all-equity firm with 290million shares​ outstanding, which are currently trading for ​$9.45 per share. A month​ ago, Zetatron announced it will change its capital structure by borrowing $302 million in​ short-term debt, borrowing $ 291 million in​ long-term debt, and issuing $284 million of preferred stock. The ​$877 million raised by these​ issues, plus another $ 54 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?

a.i. What is the market value balance sheet for Zetatron before this​ transaction?

Account	Amount
Cash		​ (Round to the nearest​ integer.)
​Non-Cash Assets		​ (Round to the nearest​ integer.)
Total Assets		​ (Round to the nearest​ integer.)
Total Liabilities		​ (Round to the nearest​ integer.)
Total Equity		​ (Round to the nearest​ integer.)

The question below is where I got it wrong in the picture.

Zetatron is an all-equity firm with 280 million shares outstanding, which are currently trading for $24.16 per share. A month ago, Zetatron announced it will change its $3,619 million raised by these issues, plus another $63 million in cash that Zetatron already has, will be used to repurchase existing shares of stock. The transaction 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? a.i. What is the market value balance sheet for Zetatron before this transaction? Account Amount Cash Non-Cash Assets Total Assets Total Liabilities Total Equity $ 63 million (Round to the nearest integer.) $ 6701.8 million (Round to the nearest integer.) $ 6764.8 million (Round to the nearest integer.) $0 million (Round to the nearest integer.) $ 6764.8 million (Round to the nearest integer.) a.ii. What is the market value balance sheet for Zetatron after the new securities are issued but before the share repurchase? Account Amount Cash Non-Cash Assets Total Assets Total Liabilities Total Equity $ 3,682 million (Round to the nearest integer.) $ 6701.8 million (Round to the nearest integer.) $ 10,384 million (Round to the nearest integer.) $ 2407 million (Round to the nearest integer.) $ 7,977 million (Round to the nearest integer.) a.ili. What is the market value balance sheet for Zetatron after the share repurchase? Account Amount Cash Non-Cash Assets Total Assets Total Liabilities Total Equity $ 2 million (Round to the nearest integer.) $ 6,702 million (Round to the nearest integer.) $ 6,702 million (Round to the nearest integer.) $ 2,407 million (Round to the nearest integer.) $ 4,295 million (Round to the nearest integer.) b. At the conclusion of this transaction, how many shares outstanding will Zetatron have, and what will the value of those shares be? At the conclusion of this transaction, the number of shares outstanding Zetatron will have is 127.60 million. (Round to two decimal places.) The price per share will be $ 24.16. (Round to two decimal places.)

Answer 1

a-i). Before the transaction:

Total equity = number of shares*price per share = 290*9.45 = 2,740.5 million or 2,741 million

Total liabilities = 0, so total assets = Total equity + Total liabilities = 2,741 + 0 = 2,741 million

Cash = 54 million; non-cash assets = Total assets - cash = 2,741 - 54 = 2,687 million

a-ii). After the new securities are issued but before the share repurchase:

Total equity = 2,741 million

total liabilities = short-term debt + long-term debt + preferred stock = 302 + 291 + 284 = 877 million

Total assets = 2,741 + 877 = 3,618 million

Cash = 54 + 877 = 931 million

Non-cash assets = 3,618 - 931 = 2,687 million

a-iii). After the share repurchase:

Cash = 0; Non-cash assets = 2,687 million; Total assets = 0 + 2,687 = 2,687 million

Total liabilities = 877 million

Total equity = 2,741 - 931 = 1,810 million

b). Shares bought back @ 9.45 per share = 931/9.45 = 98.52 million

Shares outstanding = 290 - 98.52 = 191.48 million

Price per share (after repurchase) = equity value/number of shares = 1,810/191.48 = $9.45 per share