James is a skiing company in the Isle of man. It has 80 million shares outstanding with a market price of £32 per share and no debt. James has had consistently stable earnings and pays a 25% tax rate. Management plans to borrow €1 billion on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. Disregard any costs of financial distress for this question, i.e., you can consider they are always zero. 1. What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value before the announcement of the recapitalization?
James is a skiing company in the Isle of man. It has 80 million shares outstanding with a market price of £32 per share and no debt. James has had consistently stable earnings and pays a 25% tax rate. Management plans to borrow €1 billion on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. Disregard any costs of financial distress for this question, i.e., you can consider they are always zero.
1. What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value before the announcement of the recapitalization?
2.What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value after the announcement of the recapitalization, but before the company issues debt?
3.What is the share price, number of shares outstanding, market value of equity, market value of debt and the enterprise value after the issuance of debt, but before the company uses the borrowed funds to buy back shares?
4.What is the share price, a number of shares outstanding, market value of equity, market value of debt and the enterprise value after the company uses the borrowed funds to buy back shares?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
