Question
Your company has $10 million in outstanding debt and no excess cash. Investors were expecting the company to keep this amount of debt forever. Based
Your company has $10 million in outstanding debt and no excess cash. Investors were expecting the company to keep this amount of debt forever. Based on these expectations, the company's 8 million outstanding shares were trading at $4.7 per share. However, in a surprise announcement, the company just said that it will issue new shares to raise $10 million, and use the proceeds to pay off its debt. The company faces a 28% tax rate. Assume that taxes are the only market imperfection. How many shares will the company have to issue (give your answer in millions of shares, rounded to 1 decimal. For example, if your answer is 4.33 million shares, enter 4.3)?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started