How many shares will the company be able to repurchase

Assignment Help Financial Management

Reference no: EM131327775

An all-equity firm is subject to a 30 percent tax rate. Its total market value is initially $3,500,000. There are 175,000 shares outstanding. The firm announces a program to issue $1 million worth of bonds, at 10 percent interest, and to use the proceeds to buy back common stock. Assume that there is no change in costs of financial distress and that the debt is perpetual.

a. What is the value of the tax shield that the firm acquires through the bond issue?

b. According to Modigliani & Miller, what is the likely increase in the firm's market value per share, after the announcement, assuming efficient markets?

c. How many shares will the company be able to repurchase?

Reference no: EM131327775

Questions Cloud

Why the tangent line approximation is a good one : Using a graph, explain why the tangent line approximation is a good one when x = 4.1 but not when x = 16.

Explain the characteristics of conscious leadership : Explain the characteristics of conscious leadership as defined by Mackey and Sisodia and compare them to the primary characteristics of two or three other leadership theories you have studied

What is the best way to administer a drug testing policy : You will research a current HR issue facing employers today. Essentially you will pose a question and answer it based on your research. What do you recommend as an HR policy? Be sure to substantiate your recommendations with valid empirical eviden..

Determine the gain from leverage : Determine the gain from leverage if personal taxes of 20 percent on stock income and 30 percent on debt income exist.

How many shares will the company be able to repurchase : What is the value of the tax shield that the firm acquires through the bond issue?- How many shares will the company be able to repurchase?

Find the equations of the tangent line : Estimate f(2.1) and f(1.98). Are these under- or overestimates? Which estimate would you expect to be more accurate and why?

Create your plan for building your health care inc team : For the second phase of your project, using your reading and other resources, create your plan for building your Health Care Inc. team.From your knowledge of teambuilding so far answer the following:Develop and explain how you would integrate a pro..

By how much could intel managers increase value of the firm : By how much could Intel managers increase the value of the firm by issuing $50 billion in bonds and simultaneously repurchasing $50 billion in stock?

What family of functions is used in each model : For each model, find the change in temperature over a 130-year period if the temperature had been changing at the rate you found in part (b) for that model.

User Account

All Pages