DA Inc. is currently an all-equity firm, with a value of $500. It has 25 shares outstanding.
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DA Inc. is currently an all-equity firm, with a value of $500. It has 25 shares outstanding. The EBIT is 153.85 per year forever. The tax rate is 35%. The payout is 100%. It is planning to do a capital restructuring by issuing $200 of perpetual debt, costing 10% and use the proceeds to repurchase stock.
- What is the cost of unlevered equity?
- How many shares will it repurchase? At what price?
- What is the cost of levered equity? Confirm your answer by both computing the PV of all cash flows to shareholders at levered equity cost and using MMII.
Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
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