GreedyCo. is considering a stock repurchase event. The Company currently has no debt and no cash. The Adams family currently owns 48% of the outstanding
GreedyCo. is considering a stock repurchase event. The Company currently has no debt and no cash. The Adams family currently owns 48% of the outstanding stock of GreedyCo. and none of the family members want to sell their shares. Please see the below GreedyCo. summary information (income statement data is for a full year, all other data is the most recent available):
Summary Financial Data | |
EBITDA: |
$250,000,000 |
EBIT: | 200,000,000 |
EBT: | 200,000,000 |
Net Income: | $150,000,000 |
EPS: | $1.11 |
Net Current Assets - Current Liabilities: |
50,000,000 |
Net Fixed Assets: | 500,000,000 |
Shareholder's Equity: | 550,000,000 |
Shares Outstanding: |
135,000,000 |
Current Stock Price: | $7.50 |
The company would like to repurchase 16,000,000 shares at the current stock price using 100% debt at a 4.9% interest rate. Assuming they are successful, please answer the following questions. Please show all your work and round to the nearest two decimals.
What is the pro forma EPS of GreedyCo. (i.e. the EPS after the repurchase)?
What is the pro forma Return on Equity of GreedyCo.?
What are the pro forma Debt / EBITDA and EBITDA / Interest ratios?
Do you think the Adams family would want to go ahead with the proposed share repurchase? Please explain and support your explanation with quantitative data.
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