Derek's Dinghies and Rafts (DDR) is the world's largest manufacturer of rowboats and rafts. At the end of the current year, analysts expect DDR's EBIT to be $2M and they expect the same earnings annually in perpetuity. DDR's shareholders require a return of 12.5% and there are 5M common shares outstanding. DDR has debt with a total face value of $5M. The bonds have an annual coupon of 3%, are rated AAA and yield 3%. The CFO of DDR believes that the company is under-levered. To increase the leverage, the CFO proposes to repurchase 1.2M shares at a price of $1.25 per share. The repurchase will be financed by additional borrowing. The corporate tax rate is 40%. What is the value of the company prior to the repurchase, and what is the stock price after the repurchase?
◦ Value (prior) = $9.6M; Stock price (after) = $1.50
◦ Value (prior) = $9.6M; Stock price (after) = $1.14
◦ Value (prior) = $13.9M; Stock price (after) = $2.10
◦ Value (prior) = $11.6M; Stock price (after) = $1.14
◦ Value (prior) = $11.6M; Stock price (after) = $3.21
![The mandrill (Mandrillus sphinx) is a primate of the Old World monkey (Cercopithecidae) family,[3] c](https://biology-forums.com/gallery/47/medium_12359_08_06_12_5_05_05.jpeg)
The mandrill (Mandrillus sphinx) is a primate of the Old World monkey (Cercopithecidae) family,[3] c
Smallest Hamster in the World
Parabola Real World Example
An Oil-dependent World— Supply and Demand Driven
Is there anything in life that is permanent, or is the world constantly changing?
Forest and Trees around the world