Question
You work in the Finance Department for Cowbell, Inc, and you have been requested to analyze the effect of a leveraged recapitalization on the firms
You work in the Finance Department for Cowbell, Inc, and you have been requested to analyze the effect of a leveraged recapitalization on the firms balance sheet. The current book value balance sheet is given below.
Cowbell has 67,500 shares outstanding, which are currently trading for $42.50 per share. The firm is considering the issue of $300,000 in new debt, and its effective tax rate is 15%. The proceeds of the bond issue will be paid out as a one-time special dividend. Within the 1963 M&M framework, what is the stock price after the recapitalization and dividend payment?
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