Question

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 40 million shares before the recap. What is P (the stock price after the recap)? Do not round intermediate calculationos. Round your answer to the nearest cent.

Answer 1

$22.5

Step-by-step explanation:

S = (1 –wd)*(Vop)

= (1 –1/3)*($900)

=(1-0.3333)*($900)

=(0.66666)*($900)

= $600 million.

P = [S + (D –D0)] / n0=

[$600 + ($300 –$0)]/40 = $22.5

Therefore the P stock price after the recap is $22.5