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Consider an all-equity firm. The face value of the shares is 15€ and the book value of equity is 225 million euros. The company does not have own shares in treasury. The annual EBIT is 36 million euros and the firm has a pay-out ratio of 100%.

a) If there are no taxes and the required return on equity is 12%, compute the price per share and the market value of the firm.

Management is considering a change in the financing structure of the firm by issuing100M€ in perpetual debt paying interests at 7%.

If the firm uses the proceedings from the debt issue to distribute an extraordinary dividend at t=0, compute again the value of the firm and the share value after the dividend is paid (assume the M&M world).

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92740610

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