Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects to generate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring for which the company will issue $3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the same industry have a cost of equity of 20%. The capital restructuring is going to take place one month after its announcement. What is the share price of Supercool on the day before and after the restructuring completion?
Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects to generate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring for which the company will issue $3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the same industry have a cost of equity of 20%. The capital restructuring is going to take place one month after its announcement. What is the share price of Supercool on the day before and after the restructuring completion?
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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Supercool Inc is currently an unlevered firm with 1,000 outstanding shares. It expects to
generate $1,600 in EBIT in perpetuity. The tax rate is 35%. All earnings after tax are paid out
as dividends. The firm is considering a capital restructuring for which the company will issue
$3,000 of debt to buy back shares. Its cost of debt is 10%. Unlevered firms in the same
industry have a
month after its announcement. What is the share price of Supercool on the day before and
after the restructuring completion?
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