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Question: Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions:

a) At what buy-back price would shareholders be indifferent between selling shares back and holding on to them?

b) If WyoOne Corp. announces a share buyback program at $19.5, are you better of selling the shares back or holding on to them? What should be the price of WyoOne Corp. shares after the buyback?

c) If WyoOne Corp. announces a share buyback program at $22.5, are you better of selling the shares back or holding on to them? What should be the price of WyoOne Corp. shares after the buyback

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92778535

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