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What is the value of the firm before

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Reference no: EM132406430

Dream Enterprises is a fully equity financed company and has 6 million shares outstanding with a market price of $10 a share. It announces that it intends to issue $30 million of debt and use the proceeds to buy back its existing shares exist. Assume that the MM assumptions hold (i.e., no taxes, no costs of financial distress).

(a) What is the value of the firm before and after the proposed capital structure change?

(b) What is the debt to equity ratio after the capital structure change?

(c) What is the stock price after the capital structure change?

(d) Do shareholders gain or lose from the capital structure change?

Reference no: EM132406430

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