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Author Question: Pensacola Soda Inc. is all equity financed and generates perpetual annual EBIT of $300. Assume that ... (Read 59 times)

lindiwe

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Pensacola Soda Inc. is all equity financed and generates perpetual annual EBIT of $300. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Assume that Pensacola has a 100% payout rate, 1,500 shares outstanding, and that shareholders require a return of 5%. Assume that the tax rate is 0%. 
Pensacola is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $4.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds worth a total sum of $1,200 and a coupon rate (and yield) of 3%. Assume that the tax rate is 0%.
If Pensacola goes ahead with the repurchase, then what is its WACC after the repurchase is complete?
◦ 3.0%
◦ 3.5%
◦ 4.5%
◦ 5.0%
◦ 5.5%


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Marked as best answer by lindiwe on Apr 25, 2021

dyrone

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lindiwe

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Reply 2 on: Apr 25, 2021
Excellent


nyrave

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Reply 3 on: Yesterday
Wow, this really help

 

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