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An unlevered firm will be worth either $5000 (probability is 0.05), $10000 (probability is 0.15) $20000 (probability is 0.80) in one year. The firm has
An unlevered firm will be worth either $5000 (probability is 0.05), $10000 (probability is 0.15) $20000 (probability is 0.80) in one year. The firm has the following capital structure: Equity Stocks: 1500 outstanding shares, cost of capital is 6.5%. Debt N/A The firm plans to repurchase some of its existing shares by issuing one-year bonds at 3%. The total amount collected from the issuance of bonds will be $6000. You are also given that the bankruptcy costs are $1000 and the present value of financial distress costs is calculated at the debt cost of capital. Determine the number of outstanding shares after the repurchase
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