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Posted by: vani
Price Quoted by Student: $1
Posted On: 2016-05-29 12:12:38
 
Question
1. If you wish to maximize the total market value of the firm, would you recommend that Real Estate Inc. issue debt or equity to finance the proposed land purchase? Why? 2. Construct Real Estate Inc. market value balance sheet before the purchase. 3. Suppose you recommend that the company issues equity to finance the purchase. a. What is the net present value of the project? b. Construct the company’s market value balance sheet after it announces that the company will finance the purchase with equity. What would be the new price per share of the company’s stock? How many shares will the company need to issue to finance the purchase? c. Construct the company’s market value balance sheet after the equity issue but before the purchase has been made. How many shares of common stock does the company have outstanding? What is the price per share of the company’s stock? d. Construct the company’s market value balance sheet after the purchase has been made? 4. Suppose you recommend that the company issues debt to finance the purchase. a. What will the market value of Real Estate Inc. be if the purchase is financed with debt? b. Construct the company’s market value balance sheet after both the debt issue and the land purchase. What is the price per share of the company’s stock? 5. Which method of financing maximizes the per-share stock price of Real Estate Inc.’s equity? Explain!

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