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Zetatron is an all-equity firm with 220 million shares
outstanding, which are currently trading for $16.57 per share.
A month ago, Zetatron announced it will change its capital
structure by borrowing $546 million in short-term debt,
borrowing $397 million in long-term debt, and issuing $520
million of preferred stock. The $1,463 million raised by these
issues, plus another $98 million in cash that Zetatron already
has, will be used to repurchase existing shares of stock. The
transaction is scheduled to occur today. Assume perfect capital
markets.
a. What is the market value balance sheet for Zetatron
a.i. What is the market value balance sheet for Zetatron before
this transaction?
Account
Amount
Cash
$?? Million
Non-Cash Assets
$?? Million
Total Assets
$??Million
Total Liabilities
$??Million
Total Equity
$??Million
a.ii. What is the market value balance sheet for Zetatron
after the new securities are issued but before the share
repurchase?
Account
Amount
Cash
$?? Million
Non-Cash Assets
$?? Million
Total Assets
$??Million
Total Liabilities
$??Million
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Total Equity
$??Million
a.iii. What is the market value balance sheet for Zetatron after
the share repurchase?
Account
Amount
Cash
$?? Million
Non-Cash Assets
$?? Million
Total Assets
$??Million
Total Liabilities
$??Million
Total Equity
$??Million
b. At the conclusion of this transaction, how many shares
outstanding will Zetatron have, and what will the value of
those shares be?
At the conclusion of this transaction, the number of shares
outstanding Zetatron will have is ?? million.
The price share will be ??.
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Answer
Initial
Assets
Cash
Existing
Assets
Liabilities
50.00
700.00 Common Stock
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750.00
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Total Assets
750.00 Total Liabilities
& Equity
Shares outstanding (millions)
Value per share
After Funding is Received
Assets
Liabilities
Cash
350.00 Short term
debt
Long term
debt
Preferred
stock
Existing
700.00 Common stock
Assets
Total Assets
1,050.00 Total Liabilities
& Equity
Shares outstanding (millions)
Value per share
750.00
100.00
7.50
100.00
100.00
100.00
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After Share Repurchase
Assets
Liabilities
Cash
0.00
Short term
debt
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750.00
1,050.00
100.00
7.50
100.00