What price does cyberdyne have to offer for shares

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Cyberdyne Systems generates perpetual annual EBIT of $200.  (Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year.)  Cyberdyne has 1,000 shares outstanding which trade for $1.33.  The stockholders of Cyberdyne require a return of 9%.  Assume that Cyberdyne is initially all-equity financed.  It is considering an open market stock repurchase.  It plans to buy 20% of its outstanding shares.  The repurchased shares will be canceled.  It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 3%.  Assume that the tax rate is 40%.

What price does Cyberdyne have to offer for repurchased shares such that the repurchase price is equal to the price that prevails after the repurchase is complete?

Reference no: EM131926948

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