Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year) Wayne is all-equity financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the repurchase is complete?
Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year) Wayne is all-equity financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the repurchase is complete?
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
Related questions
Question
Transcribed Image Text:Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year.) Wayne is all-equity
financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds
pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the
repurchase is complete?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps with 8 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education