Kurz Manufacturing is currently anâ all-equity firm with 2828 million shares outstanding and a stock price of $ 15.00$15.00 per share. Although investors currently expect Kurz to remain anâ all-equity firm, Kurz plans to announce that it will borrow $ 44$44 million and use the funds to repurchase shares. Kurz will pay interest only on thisâ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 38 %38% corporate tax rate.ââ a. What is the market value ofâ Kurz's existing assets before theâ announcement? b. What is the market value ofâ Kurz's assetsâ (including any taxâ shields) just after the debt isâ issued, but before the shares areâ repurchased? c. What isâ Kurz's share price just before the shareâ repurchase? How many shares will Kurzâ repurchase? d. What areâ Kurz's market value balanceâ sheet, and share price after the shareâ repurchase?
Kurz Manufacturing is currently anâ all-equity firm with 2828 million shares outstanding and a stock price of $ 15.00$15.00 per share. Although investors currently expect Kurz to remain anâ all-equity firm, Kurz plans to announce that it will borrow $ 44$44 million and use the funds to repurchase shares. Kurz will pay interest only on thisâ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 38 %38% corporate tax rate.ââ a. What is the market value ofâ Kurz's existing assets before theâ announcement? b. What is the market value ofâ Kurz's assetsâ (including any taxâ shields) just after the debt isâ issued, but before the shares areâ repurchased? c. What isâ Kurz's share price just before the shareâ repurchase? How many shares will Kurzâ repurchase? d. What areâ Kurz's market value balanceâ sheet, and share price after the shareâ repurchase?
Related questions
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| Green Manufacturing, Inc., plans to announce that it will issue $1.91 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a coupon rate of 7 percent. Green is currently an all-equity firm worth $4.74 million with 310,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $1.41 million. This level of earnings is expected to remain constant in perpetuity. Green is subject to a corporate tax rate of 30 percent. |
| a. | What is the expected return on Greenâs equity before the announcement of the debt issue? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Expected return | % |
| b. | What is the price per share of the firmâs equity? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
| Price per share | $ |
| c. | What is Greenâs stock price per share immediately after the repurchase announcement? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
| New share price | $ |
| d-1. | How many shares will Green repurchase as a result of the debt issue? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
| Shares repurchased |
| d-2. | How many shares of common stock will remain after the repurchase? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) |
| New shares outstanding |
| e. | What is the required return on Greenâs equity after the restructuring? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) |
| Required return | % |
