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kupik [55]
2 years ago
7

Taunton's is an all-equity firm that has 152,000 shares of stock outstanding. The CFO is considering borrowing $245,000 at 6 per

cent interest to repurchase 21,000 shares. Ignoring taxes, what is the value of the firm
Business
1 answer:
dezoksy [38]2 years ago
7 0

Answer:

The value of the firm is $1,773,333

Explanation:

<u>Calculation of Value of each share</u>

Amount borrowed (A)                    $245,000

No. of shares repurchased (B)      <u>   21,000   </u>

Value for each share (C)               <u>  $11.67   </u>

<u></u>

No. of shares outstanding after repurchase(A)    131,000

(152,000 - 21,000)

Value for each share(B)                                        <u>   $11.67   </u>

Equity value after repurchase(A*B)                     $1,528,333

Add: Amount borrowed                                      <u>  $245,000</u>

Firm value after this transaction                     <u>  $1,773,333</u>

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