Digital Fruit is financed solely by common stock and has outstanding 43 million shares with a market price of $10 a share. It now announces that it intends to issue $340 million of debt and to use the proceeds to buy back common stock. There are no taxes. a. What is the expected market price of the common stock after the announcement? b. How many shares can the company buy back with the $340 million of new debt that it will issue? Note: Enter your answer in millions rounded to 1 decimal place. c. What is the market value of the firm (equity plus debt) after the change in capital structure?
Digital Fruit is financed solely by common stock and has outstanding 43 million shares with a market price of $10 a share. It now announces that it intends to issue $340 million of debt and to use the proceeds to buy back common stock. There are no taxes. a. What is the expected market price of the common stock after the announcement? b. How many shares can the company buy back with the $340 million of new debt that it will issue? Note: Enter your answer in millions rounded to 1 decimal place. c. What is the market value of the firm (equity plus debt) after the change in capital structure?
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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