9. Yourfirmhasapre‐taxvalueof$500millionandyourcapitalstructureis100%equity.Youhave10 million shares outstanding. a. What is the price of each share? [7] b. If...
9.
Yourfirmhasapre‐taxvalueof$500millionandyourcapitalstructureis100%equity.Youhave10
million shares outstanding.
a. What is the price of each share? [7]
b. If you announce that you are permanently borrowing $100 million and buying‐back $100 million in stock, how many shares will you buy? [6]
Homework Answers
9.(a)price of each share=value of firm/Number of shares outstanding
=$500 million/10 million=$50
(b)Number of shares buy back=Buy back amount/Share price=$100 million/50=2 million shares
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9.
Yourfirmhasapre‐taxvalueof$500millionandyourcapitalstructureis100%equity.Youhave10
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