Corwin International is a shipping firm with a current share price of $5.50 and 10 million shares outstanding. Suppose Corwin announces plans to increase its leverage by borrowing $20 million and repurchasing shares.
Required:
a. With perfect capital markets, what will the share price be after this announcement?
Suppose that Hawar pays a corporate tax rate of 30%, and that shareholders expect the change in debt to be permanent.
b. If the only imperfection is corporate tax rate of 30%, what will the share price be after this announcement?
c. Suppose the only imperfections are corporate taxes and financial distress costs. If the share price rises to $5.75 after this announcement, what is the PV of financial distress costs Hawar will incur as the result of this new debt?
Answers: 2
Business, 23.06.2019 01:20, ahmedeldyame
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Corwin International is a shipping firm with a current share price of $5.50 and 10 million shares ou...
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