ensen Boat Works is an all equity firm that has 340,000 shares of stock outstanding. The...
ensen Boat Works is an all equity firm that has 340,000 shares of stock outstanding. The company is in the process of borrowing $4 million at 8% interest to repurchase 80,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes?
Homework Answers
Answer:
We need to find share price of the company.
The company is in the process of borrowing $4 million at 8% interest to repurchase 80,000 shares of the outstanding stock.
Hence:
Market price of share = 4000000 / 80000 = $50
It is an all equity company.
Hence:
Value of this firm = 340000 * 50 = $17,000,000
Value of this firm = $17,000,000 = $17 million
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