Nichols Corporation's value of operations is equal to $600 million after a recapitalization (the firm had...
Nichols Corporation's value of operations is equal to $600 million after a recapitalization (the firm had no debt before the recap). It raised $150 million in new debt and used this to buy back stock. Nichols had no short-term investments before or after the recap. After the recap, wd = 25%. What is S (the value of equity after the recap)? Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number.
Homework Answers
Value of operations = value of firm = value of Debt + value of equity
Since the weight of Debt after recapitalisation is 25% which means 75%(100-25)% of the total value of firm or operations is equity
Hence, value of equity(S) = 600× 75% million
= 450 million
Also it can be observed that entity does not have any long term debt before recapitalization.
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