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

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