The value of firm is equal to value of debt plus value of equity. Assume the firm has 4 million shares outstanding currently selling at $25 per share, and it decides to issue 50 million in debt to repurchase 2 million shares, how would this affect the value before/ after.

The value of firm is equal to value of debt plus value of equity. Assume the firm has 4 million shares outstanding currently selling at $25 per share, and it decides to issue 50 million in debt to repurchase 2 million shares, how would this affect the value before/ after.

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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Question

The value of firm is equal to value of
debt plus value of equity. Assume the
firm has 4 million shares outstanding
currently selling at $25 per share, and
it decides to issue 50 million in debt
to repurchase 2 million shares, how
would this affect the value before/
after.

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