Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Hitachi Heavy Equipment Manufacturers is planning to repurchase shares of common stock with the proceeds of a $50-million permanent debt issue. The coupon rate and

image text in transcribed

Hitachi Heavy Equipment Manufacturers is planning to repurchase shares of common stock with the proceeds of a $50-million permanent debt issue. The coupon rate and yield of the debt issue is expected to be 10%. Currently, Hitachi is unlevered with 10 million common shares outstanding. Pre-tax operating income (EBIT) is $100 million. The equity currently has an (unlevered) required return of 20%. Assuming the company's tax rate is 40%, there are no personal taxes or financial distress costs, and all cash flows are level perpetuities, answer the following questions: Compute the company's total market value before the debt issue and stock repurchase. (Do not round intermediate calculations. Express your answer in whole millions of dollars, no "$", no decimal places.) _ Compute the company's share price before the debt issue and stock repurchase. (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.) Compute the company's total market value (debt plus equity) after the debt issue and stock repurchase. (Do not round intermediate results. Express your answer in whole millions of dollars, no "$", no decimal places.) _ Compute the company's share price after the debt issue and stock repurchase. (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.) _ What price is paid for the shares repurchased? (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.)_ What is the total value of the firm's equity after the repurchase? (Do not round intermediate results. Express your answer in whole millions of dollars, no "$". no decimal places.) Hitachi Heavy Equipment Manufacturers is planning to repurchase shares of common stock with the proceeds of a $50-million permanent debt issue. The coupon rate and yield of the debt issue is expected to be 10%. Currently, Hitachi is unlevered with 10 million common shares outstanding. Pre-tax operating income (EBIT) is $100 million. The equity currently has an (unlevered) required return of 20%. Assuming the company's tax rate is 40%, there are no personal taxes or financial distress costs, and all cash flows are level perpetuities, answer the following questions: Compute the company's total market value before the debt issue and stock repurchase. (Do not round intermediate calculations. Express your answer in whole millions of dollars, no "$", no decimal places.) _ Compute the company's share price before the debt issue and stock repurchase. (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.) Compute the company's total market value (debt plus equity) after the debt issue and stock repurchase. (Do not round intermediate results. Express your answer in whole millions of dollars, no "$", no decimal places.) _ Compute the company's share price after the debt issue and stock repurchase. (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.) _ What price is paid for the shares repurchased? (Do not round intermediate results. Express your answer rounded to whole dollars, no "$", no decimal places.)_ What is the total value of the firm's equity after the repurchase? (Do not round intermediate results. Express your answer in whole millions of dollars, no "$". no decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions