Question 3 (15 marks) Options and Corporate Finance Assume that as of 13 July 2009, Google had no debt or cash. The firm's managers consider recapitalising the firm by issuing zero-coupon debt with a face value of $96 billion due in January of 2011, and using the proceeds to repurchase shares. Assume that before issuing the debt, Google had 320 million shares outstanding and a market capitalisation of $135.126 billion. Use the option data from July 13, 2009 in the following figure to determine Google's firm value after debt issuance, equity value after debt issuance, market value of debt and cost of debt. Hint: Assume perfect capital markets. That is debt issuance does not affect the total value of the firm. Use the mid-point of bid and ask as the call value. GOOG 422.27 + 7.87 Jul 13 2009 @ 13:10 ET Vol 2177516 Calls Bid Ask Open Int 100 82 172 103 98 408 11 Jan 150.0 (OZF AJ) 11 Jan 160.0 (OZF AL 11 Jan 200.0 (OZF AA) 11 Jan 250.0 (OZF AU) 11 Jan 280.0 (OZF AX) 11 Jan 300.0 (OZF AT) 11 Jan 320.0 (OZF AD) 11 Jan 340.0 (OZF AI 11 Jan 350.0 (OZF AK) 11 Jan 360.0 (OZF AM) 11 Jan 380.0 (OZF AZ) 11 Jan 400.0 (OZF AU) 11 Jan 420.0 (OUP AG) 11 Jan 450.0 (OUP AV) 273.60 264.50 228.90 186.50 162.80 148.20 133.90 120.50 114.10 107.90 95.80 85.10 74.60 61.80 276.90 267.20 231.20 188.80 165.00 150.10 135.90 122.60 116.10 110.00 98.00 87.00 76.90 63.30 269 6 6 88 2577 66 379 Show your detailed steps and result in your submission. Question 3 (15 marks) Options and Corporate Finance Assume that as of 13 July 2009, Google had no debt or cash. The firm's managers consider recapitalising the firm by issuing zero-coupon debt with a face value of $96 billion due in January of 2011, and using the proceeds to repurchase shares. Assume that before issuing the debt, Google had 320 million shares outstanding and a market capitalisation of $135.126 billion. Use the option data from July 13, 2009 in the following figure to determine Google's firm value after debt issuance, equity value after debt issuance, market value of debt and cost of debt. Hint: Assume perfect capital markets. That is debt issuance does not affect the total value of the firm. Use the mid-point of bid and ask as the call value. GOOG 422.27 + 7.87 Jul 13 2009 @ 13:10 ET Vol 2177516 Calls Bid Ask Open Int 100 82 172 103 98 408 11 Jan 150.0 (OZF AJ) 11 Jan 160.0 (OZF AL 11 Jan 200.0 (OZF AA) 11 Jan 250.0 (OZF AU) 11 Jan 280.0 (OZF AX) 11 Jan 300.0 (OZF AT) 11 Jan 320.0 (OZF AD) 11 Jan 340.0 (OZF AI 11 Jan 350.0 (OZF AK) 11 Jan 360.0 (OZF AM) 11 Jan 380.0 (OZF AZ) 11 Jan 400.0 (OZF AU) 11 Jan 420.0 (OUP AG) 11 Jan 450.0 (OUP AV) 273.60 264.50 228.90 186.50 162.80 148.20 133.90 120.50 114.10 107.90 95.80 85.10 74.60 61.80 276.90 267.20 231.20 188.80 165.00 150.10 135.90 122.60 116.10 110.00 98.00 87.00 76.90 63.30 269 6 6 88 2577 66 379 Show your detailed steps and result in your submission
