Question
Rally, Inc., is an all-equity firm that has 10 million shares outstanding. The firms stock is currently traded at $3 per share. Rally plans to
Rally, Inc., is an all-equity firm that has 10 million shares outstanding. The firms stock is currently traded at $3 per share. Rally plans to announce a leveraged recapitalization plan in which it will borrow $10 million and use these funds to repurchase its shares. The firms corporate tax rate is 35%, and Rally plans to keep its outstanding debt equal to $10 million permanently. At the announcement of the leveraged recapitalization plan, the share price of Rally is closest to
| A. | $2.95 | |
| B. | $3.40
| |
| C. | $3.35
| |
| D. | $3.00 |
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Investments Analysis and Management
Authors: Charles P. Jones
12th edition
978-1118475904, 1118475909, 1118363299, 978-1118363294
