Inputs$/$Description Value

Total Assets $$25,000,000,000$

Shares Outstanding $$10,000,000,000$

Target Debt $$10,000,000,000$

Tax Rate $35\%$

Repurchase offer Price $1$ $$3$

Repurchase Offer Price $2$ $$3$

Scenario: Analyst IQ is an all equity firm with plans to borrow $$10$B $($Target Debt$)$ to repurchase shares. Analyst IQ plans to keep its outstanding debt equal to $$10$B permanent.

a$)$ Without the increase in leverage what would Analyst IQ$$s share price be$/$

b$)$ Suppose Analyst IQ$$s offers $$2\mathrm{.}75$ per share to repurchase its shares. Would shareholders sell for this price?

c$)$ Suppose Analys IQ offers $$3\mathrm{.}00$ per share and shareholders tender their shares at this price. What will Analyst IQ$$s share price be after the repurchase?

d$)$ What is the lowest price Analyst IQ can offer and have shareholders tender their shares? What will it$$s stock price be after the share repurchase in that case?

e$)$ What is the optimal level of debt for the firm from a tax savings perspective?