Firm A has 1000 shares of stock It has a Flat perpetual cash flow of $800 equal to annualEBIT As an unlevered firm it has no debt and an unlevered beta of.8 Rf = 5% and market risk premium = 5% Assume a 25% tax rate a) What is the firm’s unlevered stockcurrently worth per share b) The manager has vowed to never issueequity. But now, he is convinced to do the following. Assume thefirm issues sufficient perpetual debt to repurchase stock with theend result being 20% debt and 80% equity financing of the totalfirm market value. If the debt is risk free with a required 5%return and the firm says it will keep the debt as is withoutadjustments forever and the market believes it: i. What is the new cost of equity? What is the new WACC ii. What is the new value of the firm (Debt + Equity)? What is thevalue of equity? iii. What is the new shareprice of the firm? iv. What is the number of shares repurchased? (hint: figure out whatstock would trade for when debt issue is announced and about to bedone when figuring price to buy back stock at) . . .
https://au.timelynursingwriters.com/wp-content/uploads/2020/10/output-onlinepngtools-23-1-1030x169.png 0 0 admin https://au.timelynursingwriters.com/wp-content/uploads/2020/10/output-onlinepngtools-23-1-1030x169.png admin2020-12-09 03:28:402020-10-06 00:31:46Firm A has 1000 shares of stock It has a Flat perpetual cash flow of $800 equal to annualEBIT As an