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Calculate the share price of bravos after pays shareholder

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Problem 1: Bravos currently has a share price of $40 and 20 million shares outstanding. The firm currently has no 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 $100 million of debt in the form of a perpetual bond to pay its shareholders a dividend (i.e. the full $100 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.

Reference no: EM132740949

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