Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year) Wayne is all-equity financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the repurchase is complete?
Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year) Wayne is all-equity financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the repurchase is complete?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter20: Hybrid Financing: Preferred Stock, Warrants, And Convertibles
Section: Chapter Questions
Problem 1P: Neubert Enterprises recently issued $1,000 par value 15-year bonds with a 5% coupon paid annually...
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Transcribed Image Text:Wayne Enterprises generates perpetual annual EBIT of $320. (Assume that the EBIT occurs at year end and that we are currently at the beginning of a year.) Wayne is all-equity
financed and the stockholders of Wayne require a return of 9.6%. Assume that Wayne Enterprises borrows $2,636 and uses the money to repurchase shares for $3.33. The bonds
pay a perpetual annual coupon at the rate of 3.4% and the yield to maturity of the bonds is also 3.4%. There are no taxes in Wayne's world. What is the stock price after the
repurchase is complete?
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