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XYZ CO. is an all-equity firm with 50 million shares outstanding at $2 per share. The company
decide to increases its leverage by selling debt to raise $60 million in cash. Then it uses the cash
to repurchase its outstanding shares. What is the total value of the firm? What is the share price
now? What is debt equity ratio?

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XYZ CO is an allequity firm with 50 million shares outstan.pdf

  • 1. XYZ CO. is an all-equity firm with 50 million shares outstanding at $2 per share. The company decide to increases its leverage by selling debt to raise $60 million in cash. Then it uses the cash to repurchase its outstanding shares. What is the total value of the firm? What is the share price now? What is debt equity ratio?