Suppose that shares are repurchased at price equal to stock

Reference no: EM13477100

McCalister Corporation is an all-equity firm with 750,000 shares outstanding. The company's EBIT is $3,000,000, and EBIT is expected to remain constant over time. The company pays out all of its earnings each year, so its earnings per share (EPS) equals its dividends per share (DPS). The company's tax rate is 40%.

The company is considering issuing $2 million worth of bonds (at par) and using the proceeds for a stock repurchase. If issued, the bonds would have an estimated YTM of 5.5%. The risk-free rate is 4.5%, and the market risk premium is 5.5%. The company's beta is currently 0.95, but investment bankers say the beta will rise to 1.05 if the recapitalization occurs.

Assume that the shares are repurchased at a price equal to the stock market price prior to the recapitalization. What would be the company's stock price following the recapitalization?

Reference no: EM13477100

Questions Cloud

A paper on business organizations and business valuation : a paper on business organizations and business valuationplease submit a paper of at least three pages providing an

Do you think internet users must be charged based on the : case study akamai technologies when demand exceeds capacityin 2011 the amount of internet traffic generated by youtube

A paper on porters five forces model with respect to your : a paper on porters five forces model with respect to your businessprepare a paper of at least two and a half pages

The companys capital structure consists of debt and common : claremont company is forecasting eps of 2.00 this year on its 300000 shares of stock outstanding.nbsp its capital

Suppose that shares are repurchased at price equal to stock : mccalister corporation is an all-equity firm with 750000 shares outstanding.nbsp the companys ebit is 3000000 and ebit

Examine the similarities and difference between laws and : q.1. analyze the similarities and difference between laws and ethicsq.2. detail how technological business social and

The firms cost of equity is 11 which is determined by capm : burlington inc. is trying to establish its optimal capital structure.nbsp its current capital structure consists of 30

The projects cost and expected annual cash flows are same : evans industries is considering a new product that would require an investment of 25 million at t 0.nbsp if the new

Select an existing business which aligns their business : select an existing business that aligns their business strategy with employee performance. you may also use your own

User Account

All Pages