question archive KMS Corporation has assets with a market value of $500 million, $50 million of which are cash
KMS Corporation has assets with a market value of $500 million, $50 million of which are cash
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KMS Corporation has assets with a market value of $500 million, $50 million of which are cash. It has debt of $200 million, and 10 million shares outstanding. Assume perfect capital markets.
a. What is its current stock price?
b. If KMS distributes $50 million as a dividend, what will its share price be after the dividend is paid?
c. If instead, KMS distributes $50 million as a share repurchase, what will its share price be once the shares are repurchased?
d. What will its new market debt-equity ratio be after either transaction?
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Answer:
a. Current Stock Price : ($ 500 million-$ 200 Million)/$10 Million = $ 30 per share
b. If KMS distributes $50 million as a dividend,its share price be after the dividend :($ 450 million-$ 200 Million)/$10 Million = $ 25 per share
c.If instead, KMS distributes $50 million as a share repurchase,its share price be once the shares are repurchased :($ 450 million-$ 200 Million)/($10 Million-1.667) = $ 30 per share
d.Its new market debt-equity ratio be after either transaction : $ 200 million/$ 250 Million= 0.8
