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Currently, the firm is all equity funded with 1000000 shares valued at $9 per share and the required return on equity is 7.22%. Income tax
Currently, the firm is all equity funded with 1000000 shares valued at $9 per share and the required return on equity is 7.22%. Income tax rate is 35%. Your banker has indicated that the following leverage restructurings are possible Number of shares Debt Leverage Interest ROE 850,000 15.00% 7.50% 11.00% 700,000 30.00% 8.00% 12.00% 550,000 45.00% 8.50% 13.00% 10 Estimate the share prices for the following debt restructures 15%, 30%, and, 45%, respectively; A $6.07; $6.25; $5.96 B $5.96; $6.25: $6.07 C $6.25; $6.07; $5.96 D $5.96; $6.07; $6.25 E $6.07; $5.96; $6.25 11 Estimate which two debt restructures maximize firm value A D E 30% 45% 1596; 30% 0%; 15% 4596; 0% 0%; 30%
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