Author Question: GloboCorp is all equity financed and generates perpetual annual EBIT of $100. Assume that the EBIT, ... (Read 68 times)

HudsonKB16 · **on:** Apr 25, 2021

GloboCorp is all equity financed and generates perpetual annual EBIT of $100. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. GloboCorp has 1,500 shares outstanding which trade for $0.40. The stockholders of GloboCorp require a return of 10%. GloboCorp is considering an open market stock repurchase. It plans to buy 20% of its outstanding shares. 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 40%. What price does GloboCorp have to offer for repurchased shares such that the repurchase price is equal to the price that prevails after the repurchase is complete?
◦ $0.432
◦ $0.442
◦ $0.452
◦ $0.462
◦ $0.422

Dnite · **Reply #1 on:** Apr 25, 2021

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