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? Ross and Rachel are the equity holders of the all-equity financed company Friends Ltd. (Friends Ltd.). Each one of them holds 50% of Friends
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Ross and Rachel are the equity holders of the all-equity financed company Friends Ltd. ("Friends Ltd."). Each one of them holds 50% of Friends Ltd.'s shares, and the overall number of outstanding shares of Friends Ltd. is 1,000. Ross and Rachel decided to go on a brake. Following this decision, it was agreed that Friends Ltd. will issue debt and with the proceeds will repurchase some of Ross's shares. Friends Ltd.'s annual perpetual EBIT is $2,000. The HIMYM Ltd. company ("HIMYM") is also an all-equity financed company, that operates in same field as Friends Ltd. HIMYM has an annual perpetual EBIT of $1,000, and its equity value is $7,000. The corporate tax rate is 30%. a. What is the unlevered value (VU) of Friends Ltd.? b. What is the price per one share of Friends Ltd. before the debt issuance? Assume that Friends Ltd. is issuing a perpetual debt of $7,000. These funds will be used to repurchase some of Ross's shares. How many shares will the company buy from Ross?
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