Assume that WyoOne Corp. recently moved to its optimal capital structure by issu

Question

Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions.
A-) At what buy-back price would shareholders be indifferent between selling shares back and holding on to them?
B-) If WyoOne Corp. announces a share buyback program at $22.5 per share, how many shares (in millions) can the company buyback?
C-) If WyoOne Corp. announces a share buyback program at $22.5 per share, what is the dollar value (in millions) accruing to remaining shareholders?
D-) If WyoOne Corp. announces a share buyback program at $22.5, what is the expected share price post-buyback?
“Please solve A, B, C, and D.” Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions.
A-) At what buy-back price would shareholders be indifferent between selling shares back and holding on to them?
B-) If WyoOne Corp. announces a share buyback program at $22.5 per share, how many shares (in millions) can the company buyback?
C-) If WyoOne Corp. announces a share buyback program at $22.5 per share, what is the dollar value (in millions) accruing to remaining shareholders?
D-) If WyoOne Corp. announces a share buyback program at $22.5, what is the expected share price post-buyback?
“Please solve A, B, C, and D.” Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn in firm value. There are 800mn shares outstanding and the current stock price is $17.5. WyoOne corp. intends to buy back shares with the proceeds from debt. Use this information to answer the following questions.
A-) At what buy-back price would shareholders be indifferent between selling shares back and holding on to them?
B-) If WyoOne Corp. announces a share buyback program at $22.5 per share, how many shares (in millions) can the company buyback?
C-) If WyoOne Corp. announces a share buyback program at $22.5 per share, what is the dollar value (in millions) accruing to remaining shareholders?
D-) If WyoOne Corp. announces a share buyback program at $22.5, what is the expected share price post-buyback?
“Please solve A, B, C, and D.”

Explanation / Answer

A) the share holders will be indifferent even after the buy back the price of the share will be 17.5$

x (share price after buyback) = (current value of the firm - buyback amount ) / shares after buy back

17.5 = (14000mn +2500mn - 4000mn) / 8000mn - y

on solving Y (shares bought back) = 86mn

86mn shares * buyback price = amount wanted to use for buy back

86mn * BB price = 4000mn

BB price = 46.51$

B)

4000mn / 22.5$ = 177.77mn shares can be bought bck with debt amount.

C) & D)

14000mn + 2500mn - 4000mn / 800mn - 177.77mn

20.08$

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.