What would you expect to happen to an all-equityfirm’s stock price if its management announceda recapitalization under which debt would beissued and used to repurchase common stock?
What would you expect to happen to an all-equityfirm’s stock price if its management announceda recapitalization under which debt would beissued and used to repurchase common stock?
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
What would you expect to happen to an all-equity
firm’s stock price if its management announced
a recapitalization under which debt would be
issued and used to repurchase common stock?
Expert Solution
Step 1
Introduction:
Recapitalization is a form of corporate rearrangement aimed at improving the financial structure of a corporation. In order to make their financial base more stable or optimal, businesses typically conduct recapitalization. Recapitalization simply means swapping one form of finance for another – equity securities for debt, or debt for equity.
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