Answer:
Zetatron
a. The market value balance sheet for Zetatron:
i. Before this transaction is:
$750 million
ii. After the new securities are issued, but before the share repurchase:
$950 million
iii. After the share repurchase:
$600 million
b.
Number of common shares outstanding after the repurchase = 53.33 million
Value of outstanding shares after recapitalization = $400 million
Explanation:
a) Data and Calculations:
Outstanding shares = 100 million
Current market price = $7.50 per share
Current market capitalization = $7.50 * 100 million = $750 million
b) Capital Restructuring:
Short-term debt = $100 million
Long-term debt = $100 million
Preferred Stock = $100 million
Common Stock = $400 million ($750 - $350)
Market capitalization = $600 million (Long-term, preferred and common stock)
Number of common shares repurchased = 100 million * $350/750 = 46.67 million
Number of common shares outstanding after the repurchase = 53.33 million (100 - 46.67)
Value of outstanding shares after recapitalization = $400 million
