Assume a Modigliani and Miller (MM) world with corporate taxes. Xalia Corp (XC) has 30 million shares outstanding with a market price of €10 per share and no debt. XC has consistently stable earnings of at least €500 million per year and expects this level of earnings to continue in the future. XC plans to borrow €100 million on a permanent basis through a leveraged recapitalization in which XC would use the borrowed funds to repurchase outstanding shares. XC's corporate tax rate is 30%. Consider the lowest share price that XC could offer in the leveraged recapitalization and expect shareholder to tender their shares. This price per share is closest to: A) €10 В) €9 С) €11 D) €14
Assume a Modigliani and Miller (MM) world with corporate taxes. Xalia Corp (XC) has 30 million shares outstanding with a market price of €10 per share and no debt. XC has consistently stable earnings of at least €500 million per year and expects this level of earnings to continue in the future. XC plans to borrow €100 million on a permanent basis through a leveraged recapitalization in which XC would use the borrowed funds to repurchase outstanding shares. XC's corporate tax rate is 30%. Consider the lowest share price that XC could offer in the leveraged recapitalization and expect shareholder to tender their shares. This price per share is closest to: A) €10 В) €9 С) €11 D) €14
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Answer is 11euros
Transcribed Image Text:Assume a Modigliani and Miller (MM) world with corporate taxes. Xalia Corp (XC) has
30 million shares outstanding with a market price of €10 per share and no debt. XC has
consistently stable earnings of at least €500 million per year and expects this level of
earnings to continue in the future. XC plans to borrow €100 million on a permanent
basis through a leveraged recapitalization in which XC would use the borrowed funds to
repurchase outstanding shares. XC's corporate tax rate is 30%.
Consider the lowest share price that XC could offer in the leveraged recapitalization and
expect shareholder to tender their shares. This price per share is closest to:
A) €10
В) €9
C) €11
D) €14
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