Question

Nichols Corporation’s value of operations is equal to $500 million after a recapitalization (the firm had no debt before the recap). It raised $200 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 5 40%. What is S (the value of equity after the recap)?

Answer 1

$3,000,000

Step-by-step explanation:

Base on the scenario been described in the question, for we to calculate the value of equity after recap we have to use the following method.

W4= 40/100= 0.4

S = ($2,000,000/0.4) - $2,000,00)

S = $5,000,000 -$2,000,00

S = $3,000,000

As the value of equity after recap , which is our answer .