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Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase share Rally's corporate tax rate is 35%, and Rally plans to keep its outstanding debt equ to $10 billion permanently. After the increase in leverage (i.e. if Debt-$10 billion) but before the share repurchase, what Rally's share price? Hint: assume that markets are perfect but that there are taxes (corporate tax rate=35%). $2.5 $3.5 $2.85 $1

Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase share Rally's corporate tax rate is 35%, and Rally plans to keep its outstanding debt equ to $10 billion permanently. After the increase in leverage (i.e. if Debt-$10 billion) but before the share repurchase, what Rally's share price? Hint: assume that markets are perfect but that there are taxes (corporate tax rate=35%). $2.5 $3.5 $2.85 $1

Essentials Of Investments
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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Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase shares. Rally's corporate tax rate is 35%, and Rally plans to keep its outstanding debt equal to $10 billion permanently. After the increase in leverage (i.e. if Debt-$10 billion) but before the share repurchase, what Rally's share price? Hint: assume that markets are perfect but that there are taxes (corporate tax rate=35%). $2.5 $3.5 $2.85 $1
Transcribed Image Text:Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $ 10 billion and use funds to repurchase shares. Rally's corporate tax rate is 35%, and Rally plans to keep its outstanding debt equal to $10 billion permanently. After the increase in leverage (i.e. if Debt-$10 billion) but before the share repurchase, what Rally's share price? Hint: assume that markets are perfect but that there are taxes (corporate tax rate=35%). $2.5 $3.5 $2.85 $1
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