Calculate the share price of Bravos

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Question - Bravos currently has a share price of $30 and 20 million shares outstanding. The firm currently has $120 million in outstanding debt and no excess cash. The firm is planning on conducting a levered recapitalization. As part of this transaction, the firm plans on issuing an additional $200 million of debt in the form of a perpetual bond to pay its shareholders a dividend (i.e. the full $200 million will be paid out to shareholders). The cost of debt on the perpetual bond will be 5.5%. Bravos has an unlevered cost of capital of 12% and a marginal corporate tax rate of 20%. Using the APV method, calculate the share price of Bravos after it pays its shareholders the dividend.

I. $22

II. $30

III. $20

IV. $32

Reference no: EM132746746

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