What is the market value of the firm after the recap

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An all-equity business has 100 million shares outstanding, selling for $20 a share. Management believes that interest rates are unreasonably low and decides to execute a dividend recapitalization. It will raise $1 billion in debt and repurchase 50 million shares.

Assuming the Irrelevance Proposition holds, what is the market value of the firm after the recap? What is the market value of equity?

Reference no: EM132037015

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