Bravos currently has a share price of $35 and 20 million shares outstanding. In addition, the firm currently has $120 million in debt and no excess cash. The firm is planning on conducting a levered recapitalization. As part of this transaction, the firm plans on issuing an additional $100 million of debt in the form of a perpetual bond to pay its shareholders a dividend (i.e. the full $100 million will be paid out to shareholders). The cost of debt on the perpetual bond will be 5.5%. Bravos has an unlevered cost of capital of 12% and a marginal corporate tax rate of 20%. Using the APV method, calculate the share price of Bravos after it pays its shareholders the dividend. Select one. OI. $30 O II. $35 O III. $36 O IV. $31
Bravos currently has a share price of $35 and 20 million shares outstanding. In addition, the firm currently has $120 million in debt and no excess cash. The firm is planning on conducting a levered recapitalization. As part of this transaction, the firm plans on issuing an additional $100 million of debt in the form of a perpetual bond to pay its shareholders a dividend (i.e. the full $100 million will be paid out to shareholders). The cost of debt on the perpetual bond will be 5.5%. Bravos has an unlevered cost of capital of 12% and a marginal corporate tax rate of 20%. Using the APV method, calculate the share price of Bravos after it pays its shareholders the dividend. Select one. OI. $30 O II. $35 O III. $36 O IV. $31
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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Transcribed Image Text:Bravos currently has a share price of $35 and 20 million shares outstanding. In addition, the firm currently has $120 million in debt and no excess cash. The firm is planning on
conducting a levered recapitalization. As part of this transaction, the firm plans on issuing an additional $100 million of debt in the form of a perpetual bond to pay its
shareholders a dividend (i.e. the full $100 million will be paid out to shareholders). The cost of debt on the perpetual bond will be 5.5%. Bravos has an unlevered cost of
capital of 12% and a marginal corporate tax rate of 20%. Using the APV method, calculate the share price of Bravos after it pays its shareholders the dividend. Select one.
OI. $30
O II. $35
III. $36
IV. $31
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