question archive Stock Price after Recapitalization Lee Manufacturing's value of operations is equal to $900 million after a recapitalization

Stock Price after Recapitalization Lee Manufacturing's value of operations is equal to $900 million after a recapitalization

Subject:FinancePrice:2.86 Bought3

Stock Price after Recapitalization Lee Manufacturing's value of operations is equal to $900 million after a recapitalization. (The firm had no debt before the recap.) Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 1/3. The firm had 38 million shares before the recap. What is P (the stock price after the recap)? Do not round intermediate calculations. Round your answer to the nearest cent.

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ANSWER

weight of equity = (1 - 1/3) x 900m = 600m

after recap weight of equity = 600 m

before recap share price = 900 / 38 = 23.68

by new share price he buy = 300 / 23.68 = 12.67 m

by using raised debt share = 12.67 m

after recap shares outstanding = 38 - 12.67 = 25.33 m

price per share after recap = weight of equity after recap / number of shares outstanding = 600 / 25.33 = 23.68

stock price after recap = 23.68