Question
You own your own firm and you need to raise $50 million to fund an expansion. Following the expansion, your firm will be worth $75
You own your own firm and you need to raise $50 million to fund an expansion. Following the expansion, your firm will be worth $75 million in its unlevered form. You want to go ahead with the expansion, but you are concerned that you may not be able to maintain ownership of over 50% of your firm's equity. In other words, you are concerned that if you use equity to finance the expansion, you may lose control of your firm. 5) Assume that capital markets are perfect, you issue $30 million in new debt, and you issue $20 million in new equity. Your ownership stake in the firm following these new issues of debt and equity is closest to: A) 58% B) 50% C) 33% D) 55% Answer: Explanation:
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