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borishaifa [10]
3 years ago
11

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$8

1 ​million, and the firm has no other liabilities. Assume perfect capital markets. a. Suppose Baruk has 1010 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?
Business
1 answer:
Gre4nikov [31]3 years ago
8 0

Answer and Explanation:

The given values are:

Debt obligation

= $36 million

Market value

= $81 ​million

Outstanding shares

= $10 million

(a)...

Net Assets of the firm will be:

= 81 - 36

= $45 \ million

Now, the current share price will be:

= \frac{45}{10} = $4.5 \ per \ share

(b)...

Number of shares to be issued to repay debt obligation will be:

= \frac{36}{4.5} = $8 \ million \ shares

(c)...

The total number of outstanding shares will be:

= 10+8

= $18 \ million

Now,

The Current share price will be:

= \frac{Net \ assets \ of \ the \ firm}{Total \ no \ of \ outstanding \ shares}

= \frac{81}{18}

= $4.5 \ per \ share

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