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Author Question: Slurp Cola Inc. is all equity financed and generates perpetual annual EBIT of $600. Assume that the ... (Read 62 times)

segrsyd

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Slurp Cola Inc. is all equity financed and generates perpetual annual EBIT of $600. 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 Slurp has a 100% payout rate, 1,000 shares outstanding, and that shareholders require a return of 6%. Assume that the tax rate is 0%. 
Slurp Cola Inc. is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares at the price of $10.00 per share. The repurchased shares will be cancelled. It will finance the repurchase by issuing perpetual bonds with a coupon rate (and yield) of 4%. Assume that the tax rate is 0%. 
If Slurp goes ahead with the repurchase, then what is the stock price after the repurchase is complete?
◦ $9.50
◦ $10.00
◦ $10.50
◦ $11.00
◦ $11.50


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Marked as best answer by segrsyd on Apr 25, 2021

prumorgan

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segrsyd

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Reply 2 on: Apr 25, 2021
Gracias!


sultansheikh

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Reply 3 on: Yesterday
Wow, this really help

 

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