Determine what is the market value of the firm

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Qusetion: Puppypaws Inc. is a publicly-traded company. Now it has a total market value of $210 million, consisting of 1 million shares of common stock and $80 million of 10% perpetual bonds currently selling at par. The firm pays out all earnings as dividends. The firm is expecting EBIT of $25 million to last forever. Puppypaws plans to change its capital structure without affecting its investment. Specifically, it intends to increase the current debt level to $150 million (without affecting its current debt cost). The money raised from the sale of debt will be used to repurchase some of the firm's outstanding shares. Assume the capital market is perfect. Assume Case I -no tax

Before the change in capital structure:

a) What is the market value of the firm?

b) What is the cost of equity?

c) What is the WACC?

d) What is the share price?

Reference no: EM132060845

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