KMS Corporation has assets with a market value of $500 million, $50 million of which are cash.
Question:
KMS Corporation has assets with a market value of $500 million, $50 million of which are cash.
It has debt of $200 million, and 10 million shares outstanding. Assume perfect capital markets.
a. What is its current stock price?
b. If KMS distributes $50 million as a dividend, what will its share price be after the dividend is paid?
c. If instead, KMS distributes $50 million as a share repurchase, what will its share price be once the shares are repurchased?
d. What will its new market debt-equity ratio be after either transaction?
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Lets solve each part of the question step by step a Current stock price before any distribution The stock price can be calculated using the market value of the equity total assets minus total debt div...View the full answer
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