Assume now that CorVIR goes ahead with this recapitalisation, i.e., raises $250 of debt and pays a dividend of $400. What will be the market values of CorVIR’s equity and debt after this transaction has been completed? What will be the stock price? What is the change in total shareholder value from this transaction ?
CorVIR Inc. is a firm whose operations generate an expected EBIT of $80 per year in perpetuity. These are all the cash-flows that the firms’ operating assets are generating, and the company is currently all- equity financed. Given the risk of CorVIR’s operations, the market requires a return of 15%, i.e., the unlevered cost of […]