Digital Fruit is financed solely by common stock and has outstanding 38 million shares with a...

90.2K

Verified Solution

Question

Finance

Digital Fruit is financed solely by common stock and hasoutstanding 38 million shares with a market price of $20 a share.It now announces that it intends to issue $290 million of debt andto use the proceeds to buy back common stock. There are no taxes.a. What is the expected market price of the common stock after theannouncement? b. How many shares can the company buy back with the$290 million of new debt that it will issue? (Enter your answer inmillions rounded to 1 decimal place.) c. What is the market valueof the firm (equity plus debt) after the change in capitalstructure? (Enter your answer in millions.) d. What is the debtratio after the change in capital structure? (Enter your answer asa whole percent.)

Answer & Explanation Solved by verified expert

4.2 Ratings (569 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Digital Fruit is financed solely by common stock and hasoutstanding 38 million shares with a market price of $20 a share.It now announces that it intends to issue $290 million of debt andto use the proceeds to buy back common stock. There are no taxes.a. What is the expected market price of the common stock after theannouncement? b. How many shares can the company buy back with the$290 million of new debt that it will issue? (Enter your answer inmillions rounded to 1 decimal place.) c. What is the market valueof the firm (equity plus debt) after the change in capitalstructure? (Enter your answer in millions.) d. What is the debtratio after the change in capital structure? (Enter your answer asa whole percent.)