Question 1. Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk's assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets.
a. Suppose Baruk has 10 million shares outstanding. What is Baruk's current share price?
b. How many new shares must Baruk issue to raise the capital needed to pay its debt obligation?
c. After repaying the debt, what will Baruk's share price be?
Question 2. EJH Company has a market capitalization of $1 billion and 20 million shares outstanding. It plans to distribute $100 million through an open market repurchase. Assuming perfect capital markets:
a. What will the price per share of EJH be right before the repurchase?
b. How many shares will be repurchased?
c. What will the price per share of EJH be right after the repurchase?