What will the new share price be after the transaction

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KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt. KD has had consistently stable earnings and pays a 21% tax rate. Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.

Problem 1: If KD can repurchase its existing shares at $20 per share, what will the new share price (of remaining shares) be after the transaction?

Problem 2: Would KD's shareholders be interested in tendering their shares at $20 per share? Explain.

Problem 3: If your answer to b) is "no" find the minimal share price at which KD's shareholders be willing to sell their shares. Provide computations.

Reference no: EM132879154

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