Business, 21.05.2021 17:30 georgetorres817373

Buffalo National Corp. (BNC) is currently an all-equity firm worth $320 million with 50 million common shares outstanding. BNC plans to announce that it will issue $120 million of perpetual debt (i. e., bonds) in order to buy back shares. BNC currently generates annual pretax earnings (EBT) of $80 million, and this level of earnings is expected to remain constant (i. e., EBIT will be $80 million) in perpetuity after the debt issuance and capital restructuring. The bonds will sell at par with an 8% annual coupon rate. BNC’s tax rate is 35%. BNC will maintain the new capital structure indefinitely. There is no financial distress cost, other agency cost, or personal income tax. Required:
a. In the market-value balance sheet of BNC before announcing the debt issuance, what is the market value of equity?
b. What is the stock price of unlevered BNC?
c. What is the expected return on equity before the announcement of the debt issuance (i. e., the cost of unlevered equity)?

Answers: 2

Show answers

Another question on Business

Business, 22.06.2019 03:30

Nellie lumpkin, who suffered from dementia, was admitted to the picayune convalescent center, a nursing home. because of her mental condition, her daughter, beverly mcdaniel, signed the admissions agreement. it included a clause requiring the par- ties to submit any dispute to arbitration. after lumpkin left the center two years later, she filed a suit against picayune to recover damages for mistreatment and malpractice. [covenant health & rehabilitation of picayune, lp v. lumpkin, 23 so.2d 1092 (miss. app. 2009)] (see page 91.) 1. is it ethical for this dispute—involving negligent medical care, not a breach of a commercial contract—to be forced into arbitration? why or why not? discuss whether medical facilities should be able to impose arbitration when there is generally no bargaining over such terms.

Answers: 3

Answer

Business, 22.06.2019 10:10

Karen is working on classifying all her company’s products in terms of whether they have strong or weak market share and whether this share is in a slow or growing market. what type of strategic framework is she using?

Answers: 2

Answer

Business, 22.06.2019 14:40

Which of the following would classify as a general education requirement

Answers: 1

Answer

Business, 23.06.2019 00:50

Mr. drucker uses a periodic review system to manage the inventory in his dry goods store. he likes to maintain 15 sacks of sugar on his shelves based on the annual demand figure of 225 sacks. it costs $2 to place an order for sugar and costs $1 to hold a sack in inventory for a year. mr. drucker checks inventory one day and notes that he is down to 9 sacks; how much should he order?

Answers: 1

Answer

You know the right answer?

Buffalo National Corp. (BNC) is currently an all-equity firm worth $320 million with 50 million comm...

Questions