UGBA103_Pb_Set8 - UGBA 103 Problem Set #8 GSI: Florent...

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UGBA 103 – Problem Set #8 GSI: Florent Rouxelin 16-2. Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk’s assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets. a. Suppose Baruk has 10 million shares outstanding. What is Baruk’s current share price? b. How many new shares must Baruk issue to raise the capital needed to pay its debt obligation? c. After repaying the debt, what will Baruk’s share price be? 16-5. Which type of asset is more likely to be liquidated for close to its full market value in the event of financial distress: a. An office building or a brand name? b. Product inventory or raw materials? c. Patent rights or engineering “know-how”? 16-12. Hawar International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Hawar announces plans to lower its corporate taxes by borrowing $20 million and repurchasing shares. a. With perfect capital markets, what will the share price be after this announcement? Suppose that Hawar pays a corporate tax rate of 30%, and that shareholders expect the change in
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UGBA103_Pb_Set8 - UGBA 103 Problem Set #8 GSI: Florent...

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