Question

A firm, which is all equity financed, has a market value of INR 2000 crores. The...

A firm, which is all equity financed, has a market value of INR 2000 crores. The firm has announced that it will issue debt of 400 crores at 15% interest rate, which is going to be carried forward in perpetuity. The prevailing tax rate is 20% and the number of shares of the firm is 20 crores. What is the per share price after the announcement?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The EBIT of a firm is INR 15 crores. The firm is currently all equity financed...
The EBIT of a firm is INR 15 crores. The firm is currently all equity financed at a cost of equity capital of 15%. The firm intends to lever up and change its capital structure by taking on debt of INR50 crores in perpetuity as it provides some value add to the firm. If the prevailing tax rate is 20%, what is the value of this firm before and after the change in capital structure? The firm is currently efficiently...
A company is all-equity financed. Total market value of the firm is $200,000 and there are...
A company is all-equity financed. Total market value of the firm is $200,000 and there are 1,000 shares currently outstanding. The firm plans to repurchase $20,000 worth of stock. Tax rate on dividends and capital gains is zero. a) What will be the stock price before and after the repurchase? b) suppose an investor who holds 10 shares sells 1 of her shares back to the firm. what will be value of her position?
SOS Ltd is currently an all-equity firm and has a market value of $800,000. SOS is...
SOS Ltd is currently an all-equity firm and has a market value of $800,000. SOS is evaluating whether a levered capital structure would maximize the wealth of shareholders. The cost of equity is currently 15%. The new capital structure under consideration is an issue of $400,000 new perpetual debt with an 8% interest rate. There are currently 32,000 shares outstanding and a tax rate of 35% applies to this firm. If SOS finally changes to the new levered capital structure,...
Arizona Coffee, Inc. is an all-equity firm, and has just announced that it will raise $5...
Arizona Coffee, Inc. is an all-equity firm, and has just announced that it will raise $5 million perpetual debt to repurchase some of its shares (in about a month’s time). Suppose the firm currently has 500,000 shares outstanding, and that its shares were trading at $20/share before the announcement. Further assume that the marginal corporate tax rate is 40% and that it is highly unlikely that Arizona Coffee will become financially distressed after raising $5 million in debt (i.e. PV...
XYZ Inc. is an unlevered firm with a market value of $9,000,000,000. The firm has a...
XYZ Inc. is an unlevered firm with a market value of $9,000,000,000. The firm has a constant stream of cash flow in perpetuity, which it pays out as dividends every year. Imagine that the managers of XYZ Inc. want to add leverage to the firm. Specifically, suppose that the managers announce a previously unanticipated plan that the firm will issue perpetual debt later today and use the proceeds to repurchase some of the equity so that, after the recapitalization is...
Q5. Firm XYZ is currently financed entirely with equity that has a total market value of...
Q5. Firm XYZ is currently financed entirely with equity that has a total market value of $100 million. Management is considering a debt-for-equity swap to add leverage to the firm's capital structure. Management recognizes two factors that would affect the value of the firm as leverage is added. First, the addition of permanent debt in the amount of ? would provide a tax shield that has a value of ??? where for firm XYZ, ??=0.34. The second, and offsetting, factor...
A firm is solely financed by equity with market value of $50,000 and cost of equity...
A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via corporate bonds with cost of debt of 5% and use all of it to buy back outstanding equity (no cash holding). Hold investment policies fixed. In a MM world without taxes, What would the firm value be after debt issuance? Firm Value = Equity Value + Debt Value - Cash. What would be the cost...
Firm value based approach- illustration Current year Revenue: INR 500 crores Earnings before Interest and after...
Firm value based approach- illustration Current year Revenue: INR 500 crores Earnings before Interest and after Tax (EBIAT) or Net Operating Profit after Tax (NOPAT): 10% Present investment in WC: zero Present Growth rate in operating income: 5% Current cost of capital: 15% Cost of Capital drops by 0.10% for every 10% increase in WC/Revenue Growth rate in revenue and EBIAT: 6%,6.5% ,6.83% and 6.93% when WC/Rev is 10%,20% , 30% and 40% respectively. Ignore delta capex depreciation and amortization....
Reliable Gearing currently is all-equity-financed. It has 25,000 shares of equity outstanding, selling at $100 a...
Reliable Gearing currently is all-equity-financed. It has 25,000 shares of equity outstanding, selling at $100 a share. The firm is considering a capital restructuring. The low-debt plan calls for a debt issue of $350,000 with the proceeds used to buy back stock. The high-debt plan would exchange $550,000 of debt for equity. The debt will pay an interest rate of 10%. The firm pays no taxes. a. What will be the debt-to-equity ratio if it borrows $350,000? (Round your answer...
Trojan Ltd is an all-equity firm subject to a 30 percent tax rate. Its total market...
Trojan Ltd is an all-equity firm subject to a 30 percent tax rate. Its total market value is initially $3,500,000. There are 175,000 shares outstanding. The firm announces a program to issue $1 million worth of bonds at 10 percent interest and to use the proceeds to buy back common stock. Assume that there is no change in costs of financial distress and that the debt is perpetual. Required: a. What is the value of the tax shield that Trojan...