Arts & Crafts Inc. has 300 million shares, which currently trade at $40/share, the firm has...
Arts & Crafts Inc. has 300 million shares, which currently trade at $40/share, the firm has no debt, and its tax rate is 40%. The company just decided to borrow $6 billion at a 6% interest rate (the firm plans to roll over the debt forever). The firm will use the funds to repurchase its shares.
a.) What is the value of this firms equity before it announces its plan to borrow for the purpose of repurchasing its share?
b.) What is Arts & Crafts firm value?
c.) What would be the firm value when the firm announces its borrowing plan?
d.) What will be the value of the firms total equity when the plan is announced?
e.) How much will the announcement benefit its shareholders?
f.) What will be the firms stock price after the announcement?
g.) How many of its shares would the firm be able to repurchase with the debt in question?
h.) What would be the stock price after the repurchase?
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