Avalon Inc., an all-equity firm, has assets worth $45 billion and 15 billion shares outstanding. Avalon plans to borrow $9 billion and use the funds to repurchase shares. The corporate tax rate is 25%, and Avalon intends to maintain its debt level of $9 billion permanently. Without the increase in leverage, what would Avalon's share price be?
Avalon Inc., an all-equity firm, has assets worth $45 billion and 15 billion shares outstanding. Avalon plans to borrow $9 billion and use the funds to repurchase shares. The corporate tax rate is 25%, and Avalon intends to maintain its debt level of $9 billion permanently. Without the increase in leverage, what would Avalon's share price be?
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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Transcribed Image Text:Avalon Inc., an all-equity firm, has assets worth $45 billion and
15 billion shares outstanding. Avalon plans to borrow $9 billion
and use the funds to repurchase shares. The corporate tax rate
is 25%, and Avalon intends to maintain its debt level of $9
billion permanently.
Without the increase in leverage, what would Avalon's share
price be?
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