Calculate the price of a share in mitsui ltd immediately

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Mitsui Ltd has 1 million issued shares and expects unlevered after-tax cash flows of $300,000 every year, forever. The company is all-equity financed, and its cost of capital is 12% p.a. The company's tax rate is 30%. The company has just announced its intention to borrow an additional $1,400,000 of perpetual debt (at a 7% p.a. interest rate) and use the proceeds to repurchase shares

Problem a) Calculate the price per share of Mitsui Ltd immediately before the repurchase announcement.

Problem b) Calculate the price of a share in Mitsui Ltd immediately after the repurchase announcement but before the new borrowings occur (assuming that the market expects repurchase to occur with certainty and that there are no other information effects).

Problem c) Calculate the cost of equity capital for Mitsui Ltd after the share repurchase (ignoring other information effects).

Reference no: EM132758682

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