Johnson Inc., is an unlevered firm with a total market value of $600,000 and 15,000 shares of stock outstanding. The firm is considering a bond issue of $200,000 with an attached interest rate of 6 percent. The bond proceeds will be used to repurchase shares. The tax rate is 30 percent. According to M&M (the value of the leveraged firm = Value of the unleveraged firm + tax shield), how many shares will Johnson have to repurchase after the announcement?
a. 5,000
b. 3,636
c. 4,545
d. 4,712
Answers: 2
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Johnson Inc., is an unlevered firm with a total market value of $600,000 and 15,000 shares of stock...
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