QUESTION 7You 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 capitalrestructuring that allows $7.8 million of debt with a coupon rate of 4.5 percent. The debt will be sold at par value andthe proceeds will be used to repurchase shares. What is the value per share after the recapitalization? (Hint: You needto determine the total value of equity after recapitalization that accounts for the PV of interest tax shield and thenumber of shares outstanding after repurchase)$77.71$78.88$80.05$81.22$82.39

Company purchases own shares by issue of debt and this is done to create value for shareholders of…

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

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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter26: Mergers And Corporate Control

Section: Chapter Questions

Problem 1P: Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares...

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Question One : LOFTA Corporation is interested in measuring the cost of each specific type of capital as well as the weighted average cost of capital. Historically, the firm has raised capital in the following manner: The tax rate of the firm is currently 30%. The needed financial information and data are as follows: Debt LOFTA can raise debt by selling $1,000-par-value, 6.5% coupon interest rate, 10-year bonds on which annual interest payments will be made. To sell the issue, an average discount of $20 per bond needs to be given. There is an associated flotation cost of 2% of par value. Preferred stock Preferred stock can be sold under the following terms: The security has a par value of $100 per share, the annual dividend rate is 6% of the par value, and the flotation cost is expected to be $4 per share. The preferred stock is expected to sell for $102 before cost considerations. Common stock The current price of Nova’s common stock is $35 per share. The cash dividend is expected…
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Hasting Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.4 (given its target capital structure). Vandell has $10.82 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCFJ is $2 million per year and is expected to grow at a constant rate of 5% a year. Vandell pays a 40% combined federal and state tax rate. The risk-free rate of interest is 5%, and the market risk premium is 6%. Hasting’s First step is to estimate the current intrinsic value of Vandell. What are Vandell’s cost of equity and weighted average cost of capital? What is Vandell’s intrinsic value of operations? [Hint: Use the free cash flow corporate valuation model from Chapter 8.) What is the current intrinsic value of Vandell’s stock?