Question
Almost There, Inc. currently has not debt, but is considering recapitalizing the firm. Specifically, it is planning to issue 100 million dollars of debt and
Almost There, Inc. currently has not debt, but is considering recapitalizing the firm. Specifically, it is planning to issue 100 million dollars of debt and us the proceeds to buy back shares of stock. Right now, the firm has a tax rate of 21% has six million share of stock trading at fifty dollars per share, and the cost of capital is 12%. The firm can borrow at 7% take all calculations out at last two decimal places and clearly label your answers. Assume you are in the Modigliani and Miller theoretical framework, with taxes, and that those theoretical assumption hold:
A. After restructuring is complete, what is the value of the firm?
B. After the restructuring is complete, what is the firm's debt-equity ratio?
C. After the restructuring is complete, what is the firm's cost of equity?
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