boost its stock price. The company currently has 20 million shares outstanding with a market price of $15 per share and no debt. Midco has had consistently stable earnings and pays a 35% tax rate. Management plans to borrow $100 million on a permanent basis, and they will only wishes to repurchase $70 million worth of its shares. What is the lowest price it could offer and expect
boost its stock price. The company currently has 20 million shares outstanding with a market price of $15 per share and no debt. Midco has had consistently stable earnings and pays a 35% tax rate. Management plans to borrow $100 million on a permanent basis, and they will only wishes to repurchase $70 million worth of its shares. What is the lowest price it could offer and expect
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assume that Midco Industries wants to boost its stock price. The company currently has 20 million shares outstanding with a market price of $15 per share and no debt. Midco has had consistently stable earnings and pays a 35% tax rate. Management plans to borrow $100 million on a permanent basis, and they will only wishes to repurchase $70 million worth of its shares.
What is the lowest price it could offer and expect shareholders to tender their shares?
A.
$15.25
B.
$16.06
C.
$15.67
D.
$15
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