Question

A. Nichols Corporation's value of operations is equal to $250 million after a recapitalization (the firm had no debt before the recap). It raised $75 million in new debt and used this to buy back stock. Nichols had no short-term investments before or after the recap. After the recap, wd = 30%. What is S (the value of equity after the recap)? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

b. Lee Manufacturing's value of operations is equal to $900 million after a recapitalization. (The firm had no debt before the recap.) Lee raised $300 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 1/3. The firm had 30 million shares before the recap. What is P (the stock price after the recap)? Do not round intermediate calculations. Round your answer to the nearest cent.
c. Dye Trucking raised $85 million in new debt and used this to buy back stock. After the recap, Dye's stock price is $8.50. If Dye had 50 million shares of stock before the recap, how many shares does it have after the recap? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.

Answer 1

In the first scenario, the value of equity after the recap for Nichols Corporation is $175 million. In the second scenario, the stock price after the recap for Lee Manufacturing is $20 per share. In the third scenario, Dye Trucking has 10 million shares after the recap.

In the first scenario, Nichols Corporation's value of operations after a recapitalization is $250 million. They raised $75 million in new debt and used it to buy back stock. The weight of debt (wd) after the recapitalization is 30%. To find the value of equity (S) after the recap, we can use the formula:

S = Value of operations - Value of debt = $250 million - $75 million = $175 million

So, the value of equity after the recap for Nichols Corporation is $175 million.

In the second scenario with Lee Manufacturing, their value of operations after recapitalization is $900 million. They raised $300 million in new debt and used it to buy back stock. The weight of debt after the recap is 1/3. To find the stock price (P) after the recap, we can use the formula:

P = Value of equity / Number of shares = ($900 million - $300 million) / 30 million shares = $20 per share

So, the stock price after the recap for Lee Manufacturing is $20 per share.

In the third scenario with Dye Trucking, they raised $85 million in new debt and used it to buy back stock. The stock price after the recap is $8.50. To find the number of shares after the recap, we can use the formula:

Number of shares = Value of equity / Stock price = $85 million / $8.50 = 10 million shares

So, Dye Trucking has 10 million shares after the recap.