11 Old share price 12 Number of shares outstanding 13 old WACC 14 New debt 15 cost of debt 16 Tax rate 17 $10.00 1,000,000 12% A company has 1,000,000 shares outstanding traded at $10 and no debt. The company WACC is 12%. The company decides to issue $ 2,000,000 of debt to buy back its own shares. The cost of debt is 6%. The tax rate is 40%. For the following questions, please assume that MM theory holds and that debt will be $2,000,000 kept forever. 6% 40% a). What will be the new share price? b). How many shares will be bought back? c). What is the company's new WACC? Score 18 a). What will be the new share price? 19 20 New Share price 21 22 b). How many shares will be bought back? 23 24 Shares repurchasecd 25 26 c). What is the company's new WACC? 27 28 Equity 29 Debt 30 Total Value 31 32 D/E 4 34 Levered cost of equity 35 36 new WACC