Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions.

1. At what buy-back price would shareholders be indifferent between selling shares back and holding on to them?

2. If WyoOne Corp. announces a share buyback program at $22.5 per share, how many shares (in millions) can the company buyback?

3. If WyoOne Corp. announces a share buyback program at $22.5, how many shares (in millions) will be remaining after the buyback?

4. If WyoOne Corp. announces a share buyback program at $22.5 per share, what is the dollar amount of premium (in millions) paid to selling shareholders?

5. If WyoOne Corp. announces a share buyback program at $22.5 per share, what is the dollar value (in millions) accruing to remaining shareholders?

6. If WyoOne Corp. announces a share buyback program at $22.5, what is the expected share price post-buyback?

7. If WyoOne Corp. announces a share buyback program at $22.5, and assuming that you are a current shareholder, under which of the following scenarios you are economically better-off?

A

Selling the shares back to the company

B

Not selling the shares back to the company