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Determining the new share price after the announcement

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Consider a firm that has a total firm value of $500 million and a Debt-to-Value ratio of 20%. The firm is in a 25% tax bracket. There are 100,000 shares outstanding. Management announces that the company wants to issue additional debt and buy back some stock so that the Debt-to-Value ratio will increase to 25%. What will be the new share price after the announcement?

Reference no: EM133073392

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