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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![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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5cde0e34-1792-4d53-8065-96cb6bbc4e2e%2F7d57ea84-792c-426f-92e9-4e741c725f5c%2Fhcdc96e_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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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