Question
Firm B is currently an all-equity firm with 10 million shares. Its earnings before interest and taxes (EBIT) is $10 million and will stay the
Firm B is currently an all-equity firm with 10 million shares. Its earnings before interest and taxes (EBIT) is $10 million and will stay the same forever. The firms cost of equity is 10% Assume the firm issues $50 million permanent debt to repurchase its stock. Its debt cost of capital is 1%. Assume perfect capital market for problem c, d, e, and f What is firm Bs stock price after the transaction? What is firm Bs value of equity after the transaction? What is firm Bs equity cost of capital after this transaction? What is firm Bs earnings per share after this transaction?
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