Question

bounce houz inc. is all equity financed with a $22 share price and with 30 million shares outstanding. The company wants to buy back shares by issuing 300 million in debt. Shares will be repurchased at a fair price. Assume the debt willl be permanent debt and that the appropriate cost of debt will be 4% and the current corporate tax rate the firm pays is 30%

A. 660

B.90

C.600

D. 0.5

E.0.333

F. 0.666

G.12

H.18

I.300

j. 1

k. 25

L . 750

Before the transaction, what is the market value of the equity today in millions?

Answer 1

Bounce Houz Inc.
Particulars
No of common shares outstanding before repurchase transaction=	30,000,000
Market Price per share	$                      22.00
Market Value of Equity =$22*30 Million =	$          660,000,000
So Equity Market Value is $660 million.
Therefore, Option A . 600 million is correct.