3. The firm is an all-equity firm with assets worth $350 million and 100 million shares...

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3. The firm is an all-equity firm with assets worth $350 million and 100 million shares outstanding. It plans to borrow $ 100

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Answer 1

Answer #1

Total equity value = Value of unlevered firm + Tax * Debt - Debt = 350 million + 0.21 * 100 million - 100 million = 271 million

Purchased shares = 100 million/4 = 25 million

Outstanding shares after purchase = 100 - 25 = 75 million

Share price = 271 million/75 million = $ 3.61 per share

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Answer 2

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