Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Rally, Inc., is an all-equity firm with assets worth $34 billion and 8 billion shares outstanding. Rally plans to borrow $13 billion and use funds

image text in transcribed

Rally, Inc., is an all-equity firm with assets worth $34 billion and 8 billion shares outstanding. Rally plans to borrow $13 billion and use funds to repurchase shares. Rally's corporate tax rate is 21%, and Rally plans to keep its outstanding debt equal to $13 billion permanently. a. Without the increase in leverage, what would be Rally's share price? b. Suppose Rally offers $4.34 per share to repurchase its shares. Would shareholders sell for this price? c. Suppose Rally offers $4.72 per share, and shareholders tender their shares at this price. What will be Rally's share price after the repurchase? d. What is the lowest price Rally can offer and have shareholders tender their shares? What will be its stock price after the share repurchase in that case? a. Without the increase in leverage, what would be Rally's share price? Without the increase in leverage, Rally's share price is $ (Round to the nearest cent.) b. Suppose Rally offers $4.34 per share to repurchase its shares. Would shareholders sell for this price? (Select from the drop-down menu.) The minimum share price they would sell for is $ (Round to the nearest cent.) c. Suppose Rally offers $4.72 per share, and shareholders tender their shares at this price. What will be Rally's share price after the repurchase? If Rally offers $4.72 per share, and shareholders tender their shares at this price, the share price after the repurchase will be $. (Round to the nearest cent.) d. What is the lowest price Rally can offer and have shareholders tender their shares? What will be its stock price after the share repurchase in that case? The lowest offer per share is $1(Round to the nearest cent.) The stock price after repurchase is $ (Round to the nearest cent.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management EMEA Theory And Practice

Authors: Michael Ehrhardt, Roland Fox, Eugene Brigham

2nd Edition

1473760216, 9781473760219

More Books

Students also viewed these Finance questions