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Barclay's Couches Inc. has 80 million shares trading at $ 10 a share and $ 250 million in debt outstanding; the firm's current cost of
Barclay's Couches Inc. has 80 million shares trading at $ 10 a share and $ 250 million in debt outstanding; the firm's current cost of capital is 10% and it generated $ 50 million in cashflows (after taxes and capital expenditures) last year. The firm is planning to borrow $ 250 million and to buy back stock, which it believes will lower the cost of capital to 9%. a. What is the growth rate implied in the current market value? b. How much will the value of the firm increase after the recapitalization, assuming that the implied growth rate computed in part (a) is correct. C. Assuming that shareholders are rational, how many shares will be outstanding in Barclay's after the stock buyback. Barclay's Couches Inc. has 80 million shares trading at $ 10 a share and $ 250 million in debt outstanding; the firm's current cost of capital is 10% and it generated $ 50 million in cashflows (after taxes and capital expenditures) last year. The firm is planning to borrow $ 250 million and to buy back stock, which it believes will lower the cost of capital to 9%. a. What is the growth rate implied in the current market value? b. How much will the value of the firm increase after the recapitalization, assuming that the implied growth rate computed in part (a) is correct. C. Assuming that shareholders are rational, how many shares will be outstanding in Barclay's after the stock buyback
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