Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets.a.) How many shares will AC need to issue to fund the investment?b.) What is the new stock price?c.) After the transaction, what is the total value of existing shareholders' shares plus the cash payout?d.) What is the total value of the new shareholders' shares (assume that old shareholders do not purchase any of the new shares)?e.) What is the change in firm value due to this transaction?f.) Suppose AC used its cash to fund the investment instead, what is the total value of the shareholders' shares?
Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets.a.) How many shares will AC need to issue to fund the investment?b.) What is the new stock price?c.) After the transaction, what is the total value of existing shareholders' shares plus the cash payout?d.) What is the total value of the new shareholders' shares (assume that old shareholders do not purchase any of the new shares)?e.) What is the change in firm value due to this transaction?f.) Suppose AC used its cash to fund the investment instead, what is the total value of the shareholders' 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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Suppose that AC Corp. distributes its cash to shareholders as a dividend and raises new equity to fund the investment. For each question assume the firm operates in perfect capital markets.
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