UNLEV has an expected perpetual EBIT = $4,000.
January 13th, 2018
UNLEV has an expected perpetual EBIT = $4,000. The unlevered cost of capital = 15% and there are 20,000 shares of stock outstanding. The firm is considering issuing $8,800 in new par bonds to add financial leverage to the firm. The proceeds of the debt issue will be used to repurchase equity. The cost of debt = 10% and the tax rate = 34%. There are no flotation costs.124. Assume a stockholder owns 1,000 shares of UNLEV before the restructuring. The stockholder prefers a debt/equity ratio = 1.0. How could the stockholder use homemade leverage to achieve the restructuring without the help of UNLEV? Assume there are no taxes.