5. Company A is currently an all-equity firm with 10 million shares outstanding at $80 per share. The cost of equity is currently 8.0%. Company A has decided to recapitalize the firm by issuing $200 million worth of debt, and using the proceeds to pay a special dividend to the firm's equity holders. The cost of debt is 5% and there are no taxes. A. After the recapitalization transaction is completed, what is the per share price of the company's stock? B. What is the company's cost of equity after the recapitalization?

5. Company A is currently an all-equity firm with 10 million shares outstanding at $80 per share. The cost of equity is currently 8.0%. Company A has decided to recapitalize the firm by issuing $200 million worth of debt, and using the proceeds to pay a special dividend to the firm's equity holders. The cost of debt is 5% and there are no taxes. A. After the recapitalization transaction is completed, what is the per share price of the company's stock? B. What is the company's cost of equity after the recapitalization?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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