2. Qlink Ltd is involved in manufacturing of fast-moving consumer goods. The firm is currentlyan all-equity firm with 30 million shares outstanding and a stock price of Kshs. 10 per share.The firm plans to announce that it will borrow Kshs.400 million and use the funds torepurchase shares. The firm will pay interest only on this debt and has no plans to change itsdebt holding in future. The prevailing corporate tax rate is 30%.(i) What is the market value of the firm's existing assets before the announcement?(ii) What is the market value of the firm's assets (including tax shields) just after the debt isissued but before the shares are repurchased?(iii)What is the firm's share price just before the share repurchase? How many shares willQlink Ltd repurchase?(iv)What are Qlink Ltd's market value balance sheet and share price after the share repurchase?

(i) MARKET VALUE OF QLINK LTD EXISTING ASSETS BEFORE THE ANNOUNCEMENT = 30 * 10 PER SHARE = 300 M

Answered: res. The firm will pay interest only on…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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Qlink ltd is involved in manufacturing of fast -moving consumer goods.The firm is currently an all -equity firm with 30 million shares outstanding and stock price of Kshs.10 per share.The firm plans to announce that it will borrow Ksshs.400 million and use the funds to repurchase shares. The firm will pay interest only on this debt and has no plans to change its debt holding in future. The prevailing corporate tax rate is 30%.(i)What is the market value of the firm's existing existing assets before the announcement?(ii)What is the market value of the firm's assets(including tax shields) just after the debt is issued but before the shares are repurchased?(iii)What is the firm's share price just before the share repurchase?However many shares will Qlink Ltd repurchased?(iv) What are Qlink Ltd's market value balance sheet and share price after share repurchase?
Hawar International is a shipping firm with a current share price of $4.94 and 9.8 million shares outstanding. Suppose that Hawar announces plans to lower its corporate taxes by borrowing $8.7 million and repurchasing shares, that Hawar pays a corporate tax rate of 25%, and that shareholders expect the change in debt to be permanent. a. If the only imperfection is corporate taxes, what will be the share price after this announcement? b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt? a. If the only imperfection is corporate taxes, what will be the share price after this announcement? The share price after this announcement will be $ per share. (Round to the nearest cent.) b. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $4.99 after this…
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