1 points

QUESTION 59

For the next 4 questions suppose the following holds:

Consider ABC Co. with the following balance sheets. The firm decides to borrow $500 mil more on a permanent basis, and use the proceeds to repurchase shares. Assume T_C=30%, and that the stock price before the change is $70 per share.

B/S (BV)			B/S (MV)
NWC 400	L-T Debt 200		NWC 400	L-T Debt 200
FA 600	Equity 800		FA 1200	Equity 1400
1000	1000		1600	1600

What is the present value of all the tax savings in the future? Assume the firm's debt ($500 m) is permanent and the tax rate also stays the same (tC=30%).

		$50 m
		$120 m
		$150 m
		$300 m
		$500 m

1 points

QUESTION 60

What is the total market value of the firm's assets after the firm adds $500 million debt to repurchase shares?

		$1650 m
		$1750 m
		$1850 m
		$2000 m
		$2100 m

1 points

QUESTION 61

What is the total market value of the firm's equity after the firm adds $500 million debt to repurchase shares?

		$850 m
		$1050 m
		$1150 m
		$1550 m
		$1750 m

1 points

QUESTION 62

At what price should the firm repurchase the stock per share?

		$70
		$75
		$77.5
		$80
		$82.5