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What value will Monde have after the recapitalisation

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Question -

a) Monde Foods is currently valued at €500 million. Monde will be repurchasing €100 million of its equity by issuing a perpetual debt issue at a 10 per cent annual interest rate.

The company is subject to a 30 per cent marginal tax rate. Given all the Modigliani and Miller assumptions, except the assumption that there are no taxes, what value will Monde have after the recapitalisation?

b) Brokeback Mountain currently has 30 000 shares outstanding. Each share has a market value of €20. If the firm pays €5 per share in dividends, what will the value of each share be worth after the dividend payment? Ignore taxes.

c) ScrewYou Inc. is currently valued at €900 million but management wants to completely pay off its perpetual debt of €300 million. This company is subject to a 30 per cent marginal tax rate. If ScrewYou Inc. pays off its debt, what will be the total value of its equity?

Reference no: EM132948141

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