23 Jul WHAT IS THE ESTIMATED SHARE PRICE AFTER THE CAPITAL STRUCTURE CHANGE?
. Firm R currentl Show more Use the following information to respond to the next four multiple choice questions. Firm R currently has $1000000 of debt outstanding with a before tax annual coupon of 5% a constant EBIT of $2100000 and 500000 shares outstanding at a market price of $20.00. The firm is considering issuing $2500000 of debt at a before tax cost of 7% and using the proceeds to repurchase stock at the new post-announcement market price. If this plan is implemented it is expected that the required return on equity would rise to 9%. The firms marginal tax rate is 34%.. 1.What is the market value of the firm before the announcement of the issue of the new debt? 2. What is the estimated value of the firm after the new debt issue? 3. What is the estimated share price after the capital structure change? 4. How many shares remain outstanding after the capital structure change? Show less
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