Firmone is ready to launch a new product what is the share


FirmOne is ready to launch a new product. Depending upon the success of this product, FirmOne will have a value in one year of either $100 million, $150 million, or $191 million, with each outcome being equally likely. The cash flows are unrelated to the state of the economy (i.e. risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate, which is currently 5%. Assume that the capital markets are perfect. Assume that in the event of default, 20% of the value of FirmOne 's assets will be lost in bankruptcy costs. Suppose that at the start of the year, FirmOne has no debt outstanding, but has 5.6 million shares of stock outstanding. If FirmOne issues debt of $125 million face value due in one year and uses the proceeds to repurchase shares, what is the share price following the announcement of the repurchase?

Request for Solution File

Ask an Expert for Answer!!
Financial Management: Firmone is ready to launch a new product what is the share
Reference No:- TGS02786682

Expected delivery within 24 Hours