Question: Boogle is back and has no debt! Boogle has an equity Beta of 1.6, with market expected return of 10% and a risk free rate of 3%. Boogle's cash flows are expected to be 80 million next year and will grow at 3% per year. Boogle has 3 million shares outstanding.
If Boogle wants to add debt and maintain an interest coverage ratio of 10%, where corporate taxes are 40% and the cost of debt capital will be 5%.
A) What is Boogle worth today, when it has no leverage?
B) What will be Boogle's value if you add leverage and maintain an interest coverage ratio of 10%?
C) How many shares will be repurchased in this transaction?