Problem $18-15$ APV, FTE, and WACC

Summers, Inc., is an unlevered firm with expected annual earnings before taxes of $$28\mathrm{.}1$

million in perpetuity. The current required return on the firm's equity is $11$ percent and the

firm distributes all of its earnings as dividends at the end of each year. The company has

$2\mathrm{.}08$ million shares of common stock outstanding and is subject to a corporate tax rate

of $24$ percent. The firm is planning a recapitalization under which it will issue $$37\mathrm{.}7$

million of perpetual $6\mathrm{.}4$ percent debt and use the proceeds to buy back shares.

a$-1.$ Calculate the value of the company before the recapitalization plan is announced.

$($Do not round intermediate calculations and enter your answer in dollars, not

millions of dollars, rounded to the nearest whole number, e$.$g$.,1,234,567.)$

a$-2.$ What is the price per share? $($Do not round intermediate calculations and round

your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$-1.$ Use the APV method to calculate the company value after the recapitalization plan

is announced. $($Do not round intermediate calculations and enter your answer in

dollars, not millions of dollars, rounded to the nearest whole number, e$.$g$.,$

$1,234,567.$

b$-2.$ What is the price per share after the recapitalization is announced? $($Do not round

intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

c$-1.$ How many shares will be repurchased? $($Do not round intermediate calculations

and enter your answer in dollars, not millions of dollars, rounded to the nearest

whole number, e$.$g$.,1,234,567.)$

c$-2.$ What is the price per share after the recapitalization and repurchase? $($Do not round

intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

d$.$ Use the flow to equity method to calculate the value of the company's equity after

the recapitalization. $($Do not round intermediate calculations and enter your

answer in dollars, not millions of dollars, rounded to the nearest whole number,

e$.$g$.,1,234,567.)$