Announcement of the repurchase

Assignment Help Financial Management

Reference no: EM131992215

FirmOne is ready to launch a new product. Depending upon the success of this product, FirmOne will have a value in one year of either $100 million, $150 million, or $191 million, with each outcome being equally likely. The cash flows are unrelated to the state of the economy (i.e. risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate, which is currently 5%. Assume that the capital markets are perfect. Assume that in the event of default, 20% of the value of FirmOne 's assets will be lost in bankruptcy costs. Suppose that at the start of the year, FirmOne has no debt outstanding, but has 5.6 million shares of stock outstanding. If FirmOne issues debt of $125 million face value due in one year and uses the proceeds to repurchase shares, what is the share price following the announcement of the repurchase?

Reference no: EM131992215

Questions Cloud

Type of targeted advertising violate consumer privacy : Does this type of targeted advertising violate a consumer’s privacy? Why or why not?

Determination of the costs of the various sources of costly : FIN5FMA Financial Management Assignment - The determination of the costs of the various sources of costly or interest-bearing financing employed by the firm

Compare and contrast two literary works : For this piece of the Literature Project, you will submit your thesis and map as a single 1-2 page Word document.

What is the npv of the mountain bike project : Assuming that FirmOne has the ability to sell the prototype in year one for $300,000, what is the NPV of the Mountain Bike Project?

Announcement of the repurchase : FirmOne is ready to launch a new product. what is the share price following the announcement of the repurchase?

Relevant term to replace international organized crime : The more relevant term to replace "international organized crime" is:

Discuss imagery tone and speakers view of war in owen : Discuss imagery, tone, and the speaker's view of war in Herbert's "Report from Besieged City" and "Amichai's "Seven Laments for the War-Dead.

What is the stock standard deviation : What is the stock's standard deviation? Assume we don't know the probabilities about the future.

Determine the probability that the sample average : If 25 scores are selected from the whole group of incoming students then determine the probability that the sample average of the 25 scores is greater than 66.

User Account

All Pages