Question
Marley's is an unlevered firm with a stock price of $50. The firm projects earnings before interest and taxes of $100,000 in perpetuity. Assume that
Marley's is an unlevered firm with a stock price of $50. The firm projects earnings before interest and taxes of $100,000 in perpetuity. Assume that Marley decided to issue $75,000 of bonds with an attached interest rate of 6 percent to repurchase shares. Assume a 20 percent tax rate and 10,000 shares outstanding.
ANSWER ONE OF THE FOLLOWING
How many shares must the firm buyback?
OR
What is the price per share after the announcement?
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Financial Economics
Authors: Zvi Bodie, Robert C Merton, David Cleeton
2nd Edition
0558785751, 9780558785758
