Analysts expect the Cornhusk Bank to generate $99.825 million of free cash flow at the end of the current year. (Assumethat cash flows occur on December 31 and today is January 1.) Analysts expect Cornhusk's cash flow to grow at 3% inperpetuity. Cornhusk has no debt and its shareholders require a return of 11%. There are 199.96995 million sharesoutstanding which trade for $6.24. The CFO of Cornhusk wants to borrow and use the borrowed funds to repurchaseshares. The company will borrow enough funds such that its debt-to-value ratio is 25% and it plans to maintain that ratio inperpetuity. (D/E = 1/3.) The cost of debt is 5% and the tax rate is 40%. What stock price should the company offer for%3Drepurchased shares such that the post-repurchase stock price is equal to the repurchase price?$6.46$6.56$6.76$6.66

WACC is the overall cost of the company including cost of equity and cost of debt.

Answered: Analysts expect the Cornhusk Bank to…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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