Assume debt proceeds are used to repurchase equity

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a) A company has no debt and its total value is £160,000,000. Ignoring corporate tax, what will the company's value be, if it sells £50,000,000 in debt?

Suppose now that company's tax rate is 30%, what will its overall value be if it sells £50,000,000 in debt? Assume debt proceeds are used to repurchase equity.

b) Matthew's portfolio consists of 200 shares of Kellogg. The current share price is £105. The company has announced a dividend of £1.50 per share with an ex-dividend rate date of 25 June. Assuming no taxes, how much will Matthew's share be worth on 25 June?

Reference no: EM131900652

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