The firm is currently an all-equity firm with assets worth $250 million and 100 million shares outstanding. The firm plans to borrow $100 million and use these funds to repurchase shares. The firm’s marginal corporate tax is 20%, and it plans to keep its outstanding debt equal to $100 million permanently. What is the lowest price per share the firm can offer and have shareholders tender their shares? A) $1.00 B) $1.50 C) $1.70 D) $2.50 E) $2.70
The firm is currently an all-equity firm with assets worth $250 million and 100 million shares outstanding. The firm plans to borrow $100 million and use these funds to repurchase shares. The firm’s marginal corporate tax is 20%, and it plans to keep its outstanding debt equal to $100 million permanently. What is the lowest price per share the firm can offer and have shareholders tender their shares? A) $1.00 B) $1.50 C) $1.70 D) $2.50 E) $2.70
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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The firm is currently an all-equity firm with assets worth $250 million and 100 million shares outstanding. The firm plans to borrow $100 million and use these funds to repurchase shares. The firm’s marginal corporate tax is 20%, and it plans to keep its outstanding debt equal to $100 million permanently. What is the lowest price per share the firm can offer and have shareholders tender their shares?
A) $1.00
B) $1.50
C) $1.70
D) $2.50
E) $2.70
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