Long question, thank you!!!
Union Aerospace Corporation (UAC) generates perpetual annual EBIT of $500. (Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year.) UAC has 1,000 shares outstanding. The stockholders of UAC require a return of 11%. Assume that UAC is initially all-equity financed. It is considering an open market stock repurchase and it plans to buy 20% of its outstanding shares at the price that prevails prior to the repurchase (under the all-equity capital structure). The repurchased shares will be cancelled and it will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 4%. Assume that the tax rate is 40%. Answer the questions that follow. Part 1 What is the value of UAC prior to the repurchase? (Round your answer to the nearest whole dollar.) Check Answer Part 2 What is the price per share for UAC stock prior to the repurchase? (Round your answer to two decimals.) Check Answer Part 3 If UAC goes ahead with the repurchase and pays the prevailing market price for the repurchased shares, then how much money does it need to borrow? Assume that it will borrow by issuing perpetual bonds with that amount as the face value and it will set the coupon rate equal to the yield. (Round your answer to the nearest whole dollar.) Check Answer Part 4 If UAC goes ahead with the repurchase, then what is the value of the company after the repurchase is complete? (Round your answer to the nearest whole dollar.) Check Answer Part 5 What is the stock price after the repurchase is complete? (Round your answer to two decimal places.) Check Answer Part 6 What is the required return of stockholders for UAC after the repurchase is complete? (Express your answer in percentage form rounded to two decimals.) % Check Answer Question Part 7. What is the WACC for UAC after the repurchase is complete? (Express your answer in percentage form rounded to two decimals.) % Check Answer Union Aerospace Corporation (UAC) generates perpetual annual EBIT of $500. (Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year.) UAC has 1,000 shares outstanding. The stockholders of UAC require a return of 11%. Assume that UAC is initially all-equity financed. It is considering an open market stock repurchase and it plans to buy 20% of its outstanding shares at the price that prevails prior to the repurchase (under the all-equity capital structure). The repurchased shares will be cancelled and it will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 4%. Assume that the tax rate is 40%. Answer the questions that follow. Part 1 What is the value of UAC prior to the repurchase? (Round your answer to the nearest whole dollar.) Check Answer Part 2 What is the price per share for UAC stock prior to the repurchase? (Round your answer to two decimals.) Check Answer Part 3 If UAC goes ahead with the repurchase and pays the prevailing market price for the repurchased shares, then how much money does it need to borrow? Assume that it will borrow by issuing perpetual bonds with that amount as the face value and it will set the coupon rate equal to the yield. (Round your answer to the nearest whole dollar.) Check Answer Part 4 If UAC goes ahead with the repurchase, then what is the value of the company after the repurchase is complete? (Round your answer to the nearest whole dollar.) Check Answer Part 5 What is the stock price after the repurchase is complete? (Round your answer to two decimal places.) Check Answer Part 6 What is the required return of stockholders for UAC after the repurchase is complete? (Express your answer in percentage form rounded to two decimals.) % Check Answer Question Part 7. What is the WACC for UAC after the repurchase is complete? (Express your answer in percentage form rounded to two decimals.) % Check
