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– It is anticipated that Jack Security will continue to generate $300 in cash flow in the near future. Jack’s cost of equity capital is thirty percent, and the company is fully financed by equity.

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– It is anticipated that Jack Security will continue to generate $300 in cash flow in the near future. Jack’s cost of equity capital is thirty percent, and the company is fully financed by equity. The management wants to borrow $100 at a 10 percent interest rate in order to buy back $100 worth of shares (assuming that the loan will be outstanding for an indefinite period of time). What is the firm’s current value today, using Modigliani and Miller’s Proposition 1; additionally, what is the value of the claims made on the firm’s assets after the stock repurchase? After the share repurchase, what rate of return will investors need to see on common stock? (2 Marks)

The post – It is anticipated that Jack Security will continue to generate $300 in cash flow in the near future. Jack’s cost of equity capital is thirty percent, and the company is fully financed by equity. first appeared on Writeden.

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