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What is the expected return on green equity

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Reference no: EM132483046

Green Manufacturing Inc. plans to announce that it will issue $2 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 6 percent annual coupon rate. Green is currently an all-equity firm worth $6.3 million with 400,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pre-tax earnings of $1.5 million. This level of earnings is expected to remain constant in perpetuity. Green is subject to a corporate tax rate of 40 percent. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.)

a. What is the expected return on Green's equity before the announcement of the debt issue?

Expected return %?

b. What is the price per share of the firm's equity? 

Price $ per share?

d. What is Green's stock price per share immediately after the repurchase announcement?

New share price $?

e-1. How many shares will Green repurchase as a result of the debt issue?

Shares repurchased ?

e-2. How many shares of common stock will remain after the repurchase?

New shares outstanding ?

g. What is the required return on Green's equity after the restructuring?

Required return %?

Reference no: EM132483046

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