What is the expected return for shareholders of eilish inc

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Problem 1: Eilish Inc. plans to announce that it will issue $1.6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 5%. The company is currently all equity and worth $6.1 million with 280,000 shares of common stock outstanding. After the sale of the bonds, the company will maintain the new capital structure indefinitely. The annual pre- tax earnings of $1.45 million are expected to remain constant in perpetuity. Corp tax rate is 21% What is the expected return for shareholders' of Eilish Inc. as an unlevered firm? What is the price per share of the firm's equity currently? What is the price per share of the firm's equity immediadiately after the announcement of the debt issue? What is the required rate of return in the company's equity after the restructure?

Reference no: EM132933367

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