Question
Background: Your friend owns 1,000 shares of stock of GameStore Inc., a prominent video game retailer, which currently has 1 million shares outstanding. Your friend
Background: Your friend owns 1,000 shares of stock of GameStore Inc., a prominent video game retailer, which currently has 1 million shares outstanding. Your friend thus owns .1% of the firm, as currently structured.
#15- Suppose GameStore Inc. issued new debt and bought back 20% of its stock (at $25 per share). It now has 800,000 shares outstanding (1 million shares minus 20%). Your friend would like to know if this would cause the stock price to rise. What would the firms total dividends and dividends per share be, now that it has fewer shares, and new debt, on its balance sheet? What would the new stock price be, after the debt issuance, given the new dividends per share, and the new cost of capital you calculated in the last question? Explain what has happened
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