3.a.

b.

c.

d.

Wominjeka Inc. has 75 million shares outstanding with a market capitalization of $1.5 billion. The firm also has $800 million of debt in its capital structure. Wominjeka plans to issue new equity and use the proceeds to reduce its debt to zero. Assume perfect capital markets. What is the number of shares that Wominjeka needs issue to reduce its debt to zero? 15 million 25 million 30 million 40 million None of the above Wominjeka Inc. has 75 million shares outstanding with a market capitalization of $1.5 billion. The firm also has $800 million of debt in its capital structure. Wominjeka plans to issue new equity and use the proceeds to reduce its debt to zero. Assume perfect capital markets. Assume that as a shareholder who holds 150 shares in Wominjeka, you do not agree with the firm's decision to delever. What do you need to do to undo the effect of the firm's decision to reduce leverage to zero? borrow $2400 and buy 150 shares sell 150 shares and lend $2400 borrow $1600 and buy 80 shares sell 80 shares and lend $1600 None of the above Fitzroy Ltd. is a firm with 30 million shares outstanding and a corporate tax rate of 30%. Fitzroy has just announced that it will give $50 million that it has in excess cash to its shareholders via a special cash dividend. However, its shareholders always thought that the company would keep this excess cash forever. The change in Fitzroy's stock price as a result of this announcement is closest to: $0.30 $0.50 $0.80 $1.10 None of the above Which of the following statements is TRUE? When a firm conducts a recapitalization, its shareholders will capture the benefits of the interest tax shield immediately even though leverage reduces the total value of the firm's equity. The stock price always increases after a recapitalization is completed. An important similarity between debt and equity financing is that both interest and dividend payments must be made to avoid bankruptcy. Increasing leverage reduces the probability of bankruptcy. None of the above is true