Question
Company A is a company listed on the market, with a market value of 170 million and a share price of 14. The return on
Company A is a company listed on the market, with a market value of 170 million and a share price of 14. The return on equity requirement is 8% and the profit per share, or EPS, is 1.12. Company A is not expected to grow, i.e. the company's free cash flow will remain at its current level, net investments will be zero and net working capital will not change.
The company is now fully financed with own capital. However, Company A intends to take on debt with which it will buy its own shares. It intends to keep the debt to enterprise value at 30 percent. The cost of debt-related capital is 3%.
What is Company A's company value after the capital structure change?
What is the market value of Company A's equity after the capital structure change?
What is Company A's net profit after the capital structure change?
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