Zetatron is an all-equity firm with 100 million shares outstanding, which are currently trading for $7.50 per share. A

month ago, Zetatron announced it will change its capital structure by borrowing $100 million in short-term debt,

borrowing $100 million in long-term debt, and issuing $100 million of preferred stock. The $300 million raised by these

issues, plus another $50 million in cash that Zetatron already has, will be used to repurchase existing shares of stock. The

transaction is scheduled to occur today. Assume perfect capital markets.

a. What is the market value balance sheet for Zetatron (We use

Assets = Liabilities + Equity)

i. Before this transaction?

Assets =$50 million in cash +$700 million in non-cash

Liabilities = $750 million in Equity

ii. After the new securities are issued but before the share repurchase?

iii. After the share repurchase? b. At the conclusion of this transaction, how many shares outstanding will

Zetatron have, and what will the value of those shares be?

14.

Global Pistons (GP) has common stock with a market value of $200 million and debt with a value of $100 million.

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