Hooray Company currently has a debt-equity ratio of 1/7. The stock price is $42 and there are 190,000 shares outstanding. The CFO is proposing a recapitalization plan to borrow $1,000,000 and use the proceeds to buy back shares. They can borrow at 7% and their tax rate is 25%. Based on this information, please fill in the following blanks. 1. The annual interest expense for the $1,000,000 debt is $ 2. The annual interest tax shield for the $1,000,000 debt is $ 3. The present value of the interest tax shield for the $1,000,000 debt is $ 4. The market value of the existing debt before the repurchase announcement is $ 5. The market value of the TOTAL debt after the repurchase has taken place is $ 6. The market value of the equity before the repurchase announcement is $ 7. The market value of the equity after the repurchase has taken place is $ 8. The number of shares repurchased is (round to the nearest integer please)
Hooray Company currently has a debt-equity ratio of 1/7. The stock price is $42 and there are 190,000 shares outstanding. The CFO is proposing a recapitalization plan to borrow $1,000,000 and use the proceeds to buy back shares. They can borrow at 7% and their tax rate is 25%. Based on this information, please fill in the following blanks. 1. The annual interest expense for the $1,000,000 debt is $ 2. The annual interest tax shield for the $1,000,000 debt is $ 3. The present value of the interest tax shield for the $1,000,000 debt is $ 4. The market value of the existing debt before the repurchase announcement is $ 5. The market value of the TOTAL debt after the repurchase has taken place is $ 6. The market value of the equity before the repurchase announcement is $ 7. The market value of the equity after the repurchase has taken place is $ 8. The number of shares repurchased is (round to the nearest integer please)
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:Hooray Company currently has a debt-equity ratio of 1/7. The stock price is $42 and there are 190,000 shares outstanding. The CFO is
proposing a recapitalization plan to borrow $1,000,000 and use the proceeds to buy back shares. They can borrow at 7% and their tax
rate is 25%.
Based on this information, please fill in the following blanks.
1. The annual interest expense for the $1,000,000 debt is $
2. The annual interest tax shield for the $1,000,000 debt is $
3. The present value of the interest tax shield for the $1,000,000 debt is $
4. The market value of the existing debt before the repurchase announcement is $
5. The market value of the TOTAL debt after the repurchase has taken place is $
6. The market value of the equity before the repurchase announcement is $
7. The market value of the equity after the repurchase has taken place is $
8. The number of shares repurchased is (round to the nearest integer please)
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