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Puppy Paws Limited is a major supplier of dog food designed specifically for huskies. The...

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Finance

Puppy Paws Limited is a major supplier of dog food designed specifically for huskies. The firm has a perpetual EBIT of $800,000 per year. As an un-levered firm, investors require a 13 percent return. The firm has a tax rate of 40%. Your analysis of the company has determined that the value of the unlevered firm is $3,692,307.69. If the company issues debt, the cost of borrowing will increase as the debt level increases and shareholders will require an increase in their required rate of return from 13% to 14.75%. The company has decided to issue $1,000,000 of 7% coupon debt and the value of the firm will increase to $3,970,242.91. The company will use the proceed from the bond issue to purchase some of the oustaning shares of the company in the open market. The offer price for the repurchase of the shares should be:

Question 34 options:

$29.70

$36.92

$40.92

$39.70

Answer & Explanation Solved by verified expert
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