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28 Sep 2019
Big Blue Banana (BBB) is a clothing retailer with a current shareprice of $10.00 and with 25 million shares outstanding. Supposethat BBB announces plans to lower its corporate taxes by borrowing$100 million and using the proceeds to repurchase shares.
Suppose that BBB pays corporate taxes of 40% and shareholdersexpect the change in debt to be permanent. Assume that capitalmarkets are perfect except for the existence of corporate taxes andfinancial distress costs. If the price of BBâs stock rises to$10.80 per share following the announcement, then what is thepresent value of BBBâs financial distress costs?
Big Blue Banana (BBB) is a clothing retailer with a current shareprice of $10.00 and with 25 million shares outstanding. Supposethat BBB announces plans to lower its corporate taxes by borrowing$100 million and using the proceeds to repurchase shares.
Suppose that BBB pays corporate taxes of 40% and shareholdersexpect the change in debt to be permanent. Assume that capitalmarkets are perfect except for the existence of corporate taxes andfinancial distress costs. If the price of BBâs stock rises to$10.80 per share following the announcement, then what is thepresent value of BBBâs financial distress costs?
Suppose that BBB pays corporate taxes of 40% and shareholdersexpect the change in debt to be permanent. Assume that capitalmarkets are perfect except for the existence of corporate taxes andfinancial distress costs. If the price of BBâs stock rises to$10.80 per share following the announcement, then what is thepresent value of BBBâs financial distress costs?
Deanna HettingerLv2
30 Sep 2019
