Business, 05.05.2020 06:53 winstonbendariovvygn
FetchFun Inc. is currently an all-equity firm with 20 million shares outstanding and a stock price of $7.50 per share. FetchFun Inc. plans to announce that it will borrow $50 million and use the proceeds to repurchase shares. FetchFun Inc. will pay interest only on this debt, and it has no further plans to increase or decrease the amount of debt. The corporate tax rate is 40%.
Required:
a. What is the market value of FetchFun Inc. existing assets before the announcement?
b. What is the market value of FetchFun Inc assets (including any tax shields) just after the debt is issued, but before the shares are repurchased?
Answers: 2
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FetchFun Inc. is currently an all-equity firm with 20 million shares outstanding and a stock price o...
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