You are working for an all equity firm. Your firm's current cost of equity is 8.7 percent and the tax rate is 25 per The firm has 450,000 shares of stock outstanding with a market price of $73.20 a share. The firm is considering restructuring that allows $7.8 million of debt with a coupon rate of 4.5 percent. The debt will be sold at par val the proceeds will be used to repurchase shares. What is the value per share after the recapitalization? (Hint: Yo to determine the total value of equity after recapitalization that accounts for the PV of interest tax shield and th number of shares outstanding after repurchase) $77.71 ⚫ $78.88 $80.05 $81.22 $82.39

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
icon
Related questions
Question
QUESTION 7
You are working for an all equity firm. Your firm's current cost of equity is 8.7 percent and the tax rate is 25 percent.
The firm has 450,000 shares of stock outstanding with a market price of $73.20 a share. The firm is considering capital
restructuring that allows $7.8 million of debt with a coupon rate of 4.5 percent. The debt will be sold at par value and
the proceeds will be used to repurchase shares. What is the value per share after the recapitalization? (Hint: You need
to determine the total value of equity after recapitalization that accounts for the PV of interest tax shield and the
number of shares outstanding after repurchase)
$77.71
$78.88
$80.05
$81.22
$82.39
Transcribed Image Text:QUESTION 7 You are working for an all equity firm. Your firm's current cost of equity is 8.7 percent and the tax rate is 25 percent. The firm has 450,000 shares of stock outstanding with a market price of $73.20 a share. The firm is considering capital restructuring that allows $7.8 million of debt with a coupon rate of 4.5 percent. The debt will be sold at par value and the proceeds will be used to repurchase shares. What is the value per share after the recapitalization? (Hint: You need to determine the total value of equity after recapitalization that accounts for the PV of interest tax shield and the number of shares outstanding after repurchase) $77.71 $78.88 $80.05 $81.22 $82.39
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Functions of Investment Banks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education