Value of remaining equity after buyback

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Reference no: EM131321532

Global Works Inc.(GWI) is an all equity firm, currently worth $ 100 million. Costof equity capital is 20%. The CFO has pitched an exciting idea to the board. She astutelypoints out that GWI can borrow at a much lower rate than its cost of equity capital. This is correct. In abundance of caution, the board has asked you to evaluate the wisdom of theidea, specifically borrow $ 20 mil and use the proceeds to buy back some of the stock inorder to lower the cost of capital. For now, use WACC as a metric for decision. Assumethe tax rate is zero. Show the board the following:

a) Rwacc after buyback _______

b) Value of remaining equity after buyback_______

Reference no: EM131321532

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