Question
Zetatron is an all-equity firm with 230 million shares outstanding, which are currently trading for $12.83 per share. A month ago, Zetatron announced it will
Zetatron is an all-equity firm with 230 million shares outstanding, which are currently trading for $12.83 per share. A month ago, Zetatron announced it will change its capital structure by borrowing $486 million in short-term debt, borrowing $ 504 million in long-term debt, and issuing $387 million of preferred stock. The $1 comma 377 million raised by these issues, plus another $ 87 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 i. Before this transaction? 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?
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