Firm X is financed solely by common stock and has 25 million shares outstanding, it is $10 per share.
The firm now intends to issue $160 million of debt and to use the proceeds to buy back common stock.
Assume perfect capital markets.
Answer the following questions:
a) calculate the value of the equity prior to the transaction?
b) how many stocks can the company buy?
c) calculate the value of the equity after the transaction?