Question 2 [10 marks] (a) Assume that as of 15 Jan 2020, Hi-Tech had no debt or cash. The firm's 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, Hi-Tech 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: i. Hi-Tech's firm value after debt issuance; ii. the equity value after debt issuance; and the market value of debt and cost of debt. + (6 marks) 11. Hi-Tech Price $644 Jan 15 2020 Vol 256,006 Open Calls Bid ($) Ask ($){ Interest 22 Jul 25.04 602 632 100 22 Jul 30.04 56 57e 824 22 Jul 35.00 504 542 1722 22 Jul 40.00 442 46 1032 22 Jul 45.00 304 332 982 4 22 Jul 50.00 24 26 4082 22 Jul 55.04 22e 234 632 22 Jul 60.04 204 22 992 22 Jul 65.04 182 192 2692 22 Jul 70.04 162 192 662 22 Jul 75.04 16 18 882 22 Jul 80.00 15e 16 25132 Hint: Use the mid-point of bid and ask as the call value 2 i. Hi-Tech's firm value after debt issuance- t ii. Equity value after debt issuance U - Question 2 (a) continued 111. Market value of debt and cost of debt Question 2 [10 marks] (a) Assume that as of 15 Jan 2020, Hi-Tech had no debt or cash. The firm's 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, Hi-Tech 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: i. Hi-Tech's firm value after debt issuance; ii. the equity value after debt issuance; and the market value of debt and cost of debt. + (6 marks) 11. Hi-Tech Price $644 Jan 15 2020 Vol 256,006 Open Calls Bid ($) Ask ($){ Interest 22 Jul 25.04 602 632 100 22 Jul 30.04 56 57e 824 22 Jul 35.00 504 542 1722 22 Jul 40.00 442 46 1032 22 Jul 45.00 304 332 982 4 22 Jul 50.00 24 26 4082 22 Jul 55.04 22e 234 632 22 Jul 60.04 204 22 992 22 Jul 65.04 182 192 2692 22 Jul 70.04 162 192 662 22 Jul 75.04 16 18 882 22 Jul 80.00 15e 16 25132 Hint: Use the mid-point of bid and ask as the call value 2 i. Hi-Tech's firm value after debt issuance- t ii. Equity value after debt issuance U - Question 2 (a) continued 111. Market value of debt and cost of debt
