Buckeye corp is currently an all equity firm with a

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Buckeye Corp. is currently an all-equity firm with a market value of equity of $100 million. The current expected return on Buckeye's equity is 25%. Buckeye operates in a world with no taxes. Buckeye is planning on issuing $10 million in debt with an interest rate of 10% and using the cash to repurchase $10 million in shares. (a) After Buckeye repurchases the stock, what will be the expected return on the firm's stock? (b) After Buckeye repurchases the stock, what will be the firm's weighted average cost of capital?
#5. A firm currently has no debt. The firm has 10 million shares outstanding and those shares currently have a market price of $30 per share. The firm is contemplating selling $50 million in bonds and using the proceeds to repurchase shares of stock. If they undertake this action, the firm intends to keep this level of debt financing for the foreseeable future. Assume that there are no taxes. Given this data, if the firm announces that they will sell the bonds and repurchase equity what: (a) do you expect the stock price to be immediately after the announcement? (b) will be the firm’s total market value of equity immediately after the announcement? (c) do you expect the stock price to be after the bond issue/repurchase are completed?

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