The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock. The risk-free rate is 6.5%, the market risk premium is 5.0%, and the beta is currently 0.90, but the CFO believes beta would rise to 1.10 if the recapitalization occurs.
Calculate the number of shares to be repurchased. Assuming that the shares can be repurchased at the price that existed prior to the recapitalization, what would be the share price following the recapitalization?
2. Vasudevan Inc. forecasts the free cash flows (in millions) shown below. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?
Year: 1 2 3
Free cash flow: -$20 $42 $45
Recently Asked Questions
- Of the following activity types, which one gives children the least control over what happens in the activity? a) Demonstrations b) Direct Instruction c)
- Can you please help me with this Question thank you
- Apply computations of capital budgeting methods to determine the quality of the proposed investments. Use budgeting tools to compute future project cash flows