Midco Industries currently has 20 million shares outstanding with a market price of $15 per share and no debt.

(a) Find Equity price.

(b) Midco has had consistently stable earnings, and pays a 35% tax rate. Management plans to borrow $100 million on a permanent basis and use the borrowed funds to repurchase outstanding shares.

(c) Estimate tax shield using simplified formula TX=tax rate * Debt (c) Find New Value of Midco.

(d) Assume Midco repurchases its shares at the current price of $15/share. Check that the firm will repurchase 6.67 million shares.

(e) What is the price after the repurchase? (e) What must be the repurchase price so that the price does not change after the repurchase is done?