Q:

Assume that as of 15 Jan 2020, Company A had no debt or cash. The firms managers consider recapitalising the firm by issuing zero-coupon debt with a face value of $30 billion due in Jul of 2022, and using the proceeds to repurchase shares. Assume that before issuing the debt, Company A had 545.45 million shares outstanding and a market capitalisation of $34.91 billion. Assume perfect capital markets.

Use the option data from 15 Jan, 2020 in the following figure to determine Company A's Market value of debt and cost of debt:

Company A Price $64 Jan 15 2020 Vol 256,006 Open Calls Bid ($) Ask ($) Ask ($) Interest 22 Jul 25.0 60 63 100 22 Jul 30.0 56 57 82 22 Jul 35.0 50 54 172 22 Jul 40.0 44 46 103 22 Jul 45.0 30 33 98 22 Jul 50.0 24 26 408 22 Jul 55.0 22 23 63 22 Jul 60.0 20 22 99 22 Jul 65.0 18 19 269 22 Jul 70.0 16 19 66 22 Jul 75.0 16 18 88 22 Jul 80.0 15 16 2513 Hint: Use the mid-point of bid and ask as the call value Company A Price $64 Jan 15 2020 Vol 256,006 Open Calls Bid ($) Ask ($) Ask ($) Interest 22 Jul 25.0 60 63 100 22 Jul 30.0 56 57 82 22 Jul 35.0 50 54 172 22 Jul 40.0 44 46 103 22 Jul 45.0 30 33 98 22 Jul 50.0 24 26 408 22 Jul 55.0 22 23 63 22 Jul 60.0 20 22 99 22 Jul 65.0 18 19 269 22 Jul 70.0 16 19 66 22 Jul 75.0 16 18 88 22 Jul 80.0 15 16 2513 Hint: Use the mid-point of bid and ask as the call value