The XYZ company has 20,000 shares of common outstanding selling at

$70 per share. It has a .35 tax rate. It has decided to issue $350,000 of debt and use all the proceeds to repurchase shares (at a price of$70).

a. The value of Vu is $____________.

b. The value of the firm after the debt issuance and share repurchase is

$____________.

c. The value of the stock equity will be $ ____________.

d. The value per share will be $ ____________,

e. The stockholders who do not sell will have value (per share) of $____________.

f. If the debt is immediately retired after issue (the new management thinks the debt issue was a bad idea) and after the share repurchase, the value of the stock equity will then be $ ____________. The stock price will be $ . If the debt is retired by issuing new stock the value of the stock equity will be $ ____________.
g. Assume that the $350,000 debt is given to the shareholders as a dividend (instead of being issued to the public), the value of the stock equity will be $ ____________.