Author Question: Omnicorp is all equity financed and generates perpetual annual EBIT of $500. Assume that the EBIT, ... (Read 92 times)

laurencescou · **on:** Apr 25, 2021

Omnicorp is all equity financed and generates perpetual annual EBIT of $500. Assume that the EBIT, and all other cash flows, occur at year end and that we are currently at the beginning of a year. Omnicorp has 1,000 shares outstanding which trade for $3.125. The stockholders of Omnicorp require a return of 8%. Omnicorp 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 2%. Assume that the tax rate is 50%. What price does Omnicorp have to offer for repurchased shares such that the repurchase price is equal to the price that prevails after the repurchase is complete?
◦ $3.14
◦ $3.44
◦ $3.91
◦ $4.34
◦ $4.13

AISCAMPING · **Reply #1 on:** Apr 25, 2021

A FREE account is required to view all solutions!

Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.

Answer Preview

Only 59% of students answer this correctly