question archive Oriel Foods shares have a market price of $20 per share
Oriel Foods shares have a market price of $20 per share
Subject:BusinessPrice: Bought3
Oriel Foods shares have a market price of $20 per share. The firm has 30 million shares outstanding, no debt, consistently stable earnings, and pays a 35% tax rate. Management plans a leveraged recapitalization and will borrow $200 million at 8% on a permanent basis which they will use to repurchase outstanding shares.
a) What is the value of Oriel’s unlevered equity?
b) What is the present value of Oriel’s interest tax shield?
c) Find the total value of Oriel as a levered firm after the recapitalization.
d) Find the value of Oriel’s levered equity and the value of a share of Oriel’s stock after the recapitalization.
