Answer and Explanation:
The given values are:
Debt obligation
= $36 million
Market value
= $81 million
Outstanding shares
= $10 million
(a)...
Net Assets of the firm will be:
= [tex]81 - 36[/tex]
= $[tex]45 \ million[/tex]
Now, the current share price will be:
= [tex]\frac{45}{10}[/tex] = $[tex]4.5 \ per \ share[/tex]
(b)...
Number of shares to be issued to repay debt obligation will be:
= [tex]\frac{36}{4.5}[/tex] = $[tex]8 \ million \ shares[/tex]
(c)...
The total number of outstanding shares will be:
= [tex]10+8[/tex]
= $[tex]18 \ million[/tex]
Now,
The Current share price will be:
= [tex]\frac{Net \ assets \ of \ the \ firm}{Total \ no \ of \ outstanding \ shares}[/tex]
= [tex]\frac{81}{18}[/tex]
= $[tex]4.5 \ per \ share[/tex]
