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Assume that you are the President of a company that is currently worth $200 million and has no debt in its capital structure. There are 10 million shareholders and each share is worth $20 per share. You decide to issue $100 million in debt and use the proceeds to buy back shares of stock. The debt will have a coupon rate of 7.5%, the corporate tax rate is 35%, and interest payments are tax-deductible. If there aren't any costs of financial distress to worry about or transactions costs incurred in the process of issuing debt and buying back shares, what should be the price per share of the remaining shares once you are done with the buyback?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91600562

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