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The blank answers were wrong. Any help is appreciated. An all-equity business has 190 million shares outstanding selling for $20 a share. Management believes that
The blank answers were wrong. Any help is appreciated.
An all-equity business has 190 million shares outstanding selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap). It will raise $1 billion in debt and repurchase 50 million shares. a. What is the market value of the firm prior to the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. b. Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal places. d. Assume now that the recap increases total firm cash flows, which adds $280 million to the value of the firm. Now what is the market value of the firm? What is the market value of equity? Note: Enter your answers in billions rounded to 2 decimal placesStep by Step Solution
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