Used to repurchase some of the firms outstanding shares

Assignment Help Financial Management

Reference no: EM131492651

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

A) 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: EM131492651

Questions Cloud

Description of how these theories will influence : Explanation of the three theories that you relate to most. Include the associated theorists.

Option pricing-risk neutral : You try to price the put option on XYZ corp. The current stock price of XYZ is $100/share. The risk-free rate is 3%.

Briefly summarize the three phases of ece governance : Briefly summarize the three phases of ECE governance and give an example of each phase. Address issues of Early Childhood Education Governance.

How much does the firm put in retained earnings : A firm has net income of $95,000. Dividends are $35,000.

Used to repurchase some of the firms outstanding shares : Puppypaws Inc. is publicly-traded company. The money raised from the sale of debt will be used to repurchase some of the firm’s outstanding shares.

What are credit default obligations : Use intuitive words to explain what are credit default obligations (CDOs) and credit default swaps (CDSs).

Discuss negative reaction to people with physical disability : Discuss possible negative reactions to people with physical disabilities, negative feelings about themselves, and factors that may result in greater acceptance

Websites of the federal deposit insurance corporation : Research the websites of the Federal Deposit Insurance Corporation, the Federal Reserve Board, or the Office of the Comptroller of the Currency to locate.

Calculate the weighted average cost of capital for apple inc : Using Apple Inc, write a report of 800-1,000 words that demonstrates your understanding of the cost of capital and risk. Specifically, you are to include.

User Account

All Pages