Sunday, November 10, 2019

Pewter & Glass is an all equity firm that has 80,000 shares of stock outstanding. The company is in the process of borrowing $600,000


Pewter & Glass is an all equity firm that has 80,000 shares of stock outstanding. The company is in the process of borrowing $600,000 at 9 percent interest to repurchase 12,000 shares of the outstanding stock. What is the value of this firm if you ignore taxes? 
 
A. 
$2.5 million

B. 
$4.0 million

C. 
$5.0 million

D. 
$5.5 million

E. 
$6.0 million
Firm value = 80,000 × ($600,000/12,000) = $4 million


61.
The Jean Outlet is an all equity firm that has 146,000 shares of stock outstanding. The company has decided to borrow the $1.1 million to repurchase 7,500 shares of its stock from the estate of a deceased shareholder. What is the total value of the firm if you ignore taxes? 
 
A. 
$18,387,702

B. 
$18,500,000

C. 
$19,666,667

D. 
$21,413,333

E. 
$22,293,333
Firm value = 152,000 × ($1.1m/7,500) = $22,293,333


62.
Stacy owns 38 percent of The Town Centre. She has decided to retire and wants to sell all of her shares in this closely held, all equity firm. The other shareholders have agreed to have the firm borrow $650,000 to purchase her shares of stock. What is the total market value of The Town Centre? Ignore taxes. 
 
A. 
$1,710,526

B. 
$1,748,219

C. 
$1,771,089

D. 
$1,801,406

E. 
$1,808,649
Firm value = $650,000/0.38 = $1,710,526

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