perfect capital markets and no taxes. Company A pays out all available earnings as dividends. Company A is is entirely equity financed and is borrowing money to repurchase shares. Company A has 550,000 shares outstanding and Acme is expected to generate $2,500,000 in EBIT every year for the foreseeable future. Company A shareholders require an 8% return on investment. If Company A borrows money, it will have to pay a 4% interest annually on debt Company A wants to borrow money to repurchase shares such that Company A shareholders achieve a return on equity (ROE) of 15%. How much money does company a need to borrow to repurchase shares?
perfect capital markets and no taxes. Company A pays out all available earnings as dividends. Company A is is entirely equity financed and is borrowing money to repurchase shares. Company A has 550,000 shares outstanding and Acme is expected to generate $2,500,000 in EBIT every year for the foreseeable future. Company A shareholders require an 8% return on investment. If Company A borrows money, it will have to pay a 4% interest annually on debt Company A wants to borrow money to repurchase shares such that Company A shareholders achieve a return on equity (ROE) of 15%. How much money does company a need to borrow to repurchase shares?
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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perfect capital markets and no taxes.
Company A pays out all available earnings as dividends.
Company A is is entirely equity financed and is borrowing money to repurchase shares.
Company A has 550,000 shares outstanding and Acme is expected to generate $2,500,000 in EBIT every year for the foreseeable future.
Company A shareholders require an 8% return on investment .
If Company A borrows money, it will have to pay a 4% interest annually on debt
Company A wants to borrow money to repurchase shares such that Company A shareholders achieve a return on equity (ROE) of 15%.
How much money does company a need to borrow to repurchase shares?
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