What will be the value of your shares

Assignment Help Finance Basics

Reference no: EM132013850

Question: You are the new CFO of Megasoft. Megasoft has $ 1billion market value. It currently has no debt. Corporate tax rate is 40%. You make a compelling argument to the board that debt will enhance shareholder value. The board authorizes you to issue risk-free debt and buyback some stock using ALL the proceeds of debt. The board wants the post-leverage capital structure to have exactly 20% debt (B/VL=0.2). You will soon make an announcement to the shareholders about your plans to issue debt and buyback some stock.

a) Suppose you owned $ 1,000 worth of shares before the announcement. What will be the value of your shares after Megasoft is levered. Assume that you don't sell any shares.

Reference no: EM132013850

Questions Cloud

What was george washington role during american revolution : Who was the american ambassador to france during the revolution? What was George Washington's role during the American Revolution?

What sales volume would be required : A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 1.6 times the variable.

Did the irish play a role in the american revolution : Did the Irish play a role in the American Revolution? What role did African Americans play in the American revolution?

What sports were played during the american revolution : What were the roles of women before during and after the American Revolution? What sports were played during the American revolution?

What will be the value of your shares : Suppose you owned $ 1,000 worth of shares before the announcement. What will be the value of your shares after Megasoft is levered.

How many colonists were indentured or limited : Were people able to leave after they arrived? How many colonists were indentured or limited?

What is the merger premium per share : New England Fisheries (NEF) has 18,000 shares outstanding at a market price per share of $14. Maryland Fish Markets (MFM) has 7,000 shares outstanding.

What are thoughts of prohibition : What are your thoughts of Prohibition, and was Prohibition worth it overall?

How world war 1 changed the economic : Have examples to explain how the war affected the people, government power, and the economy.

User Account

All Pages