Debt to the company and replacing the management

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Reference no: EM132032578

1. ABC Corporation is currently trading at $30 per share. There are 10 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 50% if the management were replaced. How much would you gain from acquiring 50% of ABC's shares by borrowing, attaching the debt to the company and replacing the management?

A) $300M

B) $225M

C) $150M

D) $10M

2. A firm is liquidating a factory. Equipment that originally cost $120,000 is being sold for $12,000 three years after its purchase. The equipment straight-line depreciated across four years. The firm needs to recover $20,000 of net working capital, which was invested initially. Given that the firm’s marginal corporate tax rate is 40%, what is the terminal cash flow for this equipment?

$4,800

$7,200

$32,000

$39,200

Reference no: EM132032578

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