Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
Margoles Publishing is a very profitable all-equity company with 1.2 million shares outstanding. The firm plans to set aside $8.25 million in cash to complete
Margoles Publishing is a very profitable all-equity company with 1.2 million shares outstanding. The firm plans to set aside $8.25 million in cash to complete a share repurchase. Upon announcing the cash distribution to shareholders, the price per share is $47.16. Given the available information, answer the following questions: a. You bought Margoles Publishing's share for $12 per share five years ago and have held the shares since then. If the firm decides to complete the share repurchase via a tender offer at an offer price of $55 per share, what is the personal tax rate on capital gain that makes you indifferent between tendering your shares and keeping your shares? What would be your decision, if the tax rate on capital gain turns out to be higher/lower than your calculated rate? Assume no transaction costs. [12 points) b. If instead of using the internal cash for the repurchase, Margoles Publishing decides to issue $8.25 million of debt with ra=6.25% to repurchase shares through open market repurchase. Assume the firm's current cost of equity is 18% and the corporate tax rate is 34%. According to MM Proposition, what will be Margoles Publishing's cost of equity after the repurchase? [12 points] Margoles Publishing is a very profitable all-equity company with 1.2 million shares outstanding. The firm plans to set aside $8.25 million in cash to complete a share repurchase. Upon announcing the cash distribution to shareholders, the price per share is $47.16. Given the available information, answer the following questions: a. You bought Margoles Publishing's share for $12 per share five years ago and have held the shares since then. If the firm decides to complete the share repurchase via a tender offer at an offer price of $55 per share, what is the personal tax rate on capital gain that makes you indifferent between tendering your shares and keeping your shares? What would be your decision, if the tax rate on capital gain turns out to be higher/lower than your calculated rate? Assume no transaction costs. [12 points) b. If instead of using the internal cash for the repurchase, Margoles Publishing decides to issue $8.25 million of debt with ra=6.25% to repurchase shares through open market repurchase. Assume the firm's current cost of equity is 18% and the corporate tax rate is 34%. According to MM Proposition, what will be Margoles Publishing's cost of equity after the repurchase? [12 points]
![image text in transcribed](https://s3.amazonaws.com/si.experts.images/answers/2024/07/6682c503c86d4_1476682c50365e6a.jpg)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started