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Homework answers / question archive / Baruk Industries has no cash and a debt obligation of $34 million that is now due
Baruk Industries has no cash and a debt obligation of $34 million that is now due. The market value of? Baruk's assets is $76 ?million, and the firm has no other liabilities. Assume perfect capital markets.
a. Suppose Baruk has 18 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?
a). Computation of the current share price:-
Current share price = (Market value of assets - Market value of debt) / Number of shares
= ($76,000,000 - $34,000,000) / 18,000,000
= $42,000,000 / 18,000,000
= $2.33
b). Computation of the number of new shares:-
Number of new shares = Market value of debt / Current share price
= $34,000,000 / $2.33
= 14,571,428.57 shares Or 14,571,429 shares
c). Computation of the share price after debt repayment:-
Share price = Value of equity / Number of shares
= $76,000,000 / (18,000,000 + 14,571,429)
= $76,000,000 / 32,571,429
= $2.33
