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johnpaech johnpaech
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6 years ago
Assume that capital markets are perfect, you issue $30 million in new debt, and you issue $20 million in new equity.  You ownership stake in the firm following these new issues of debt and equity is closest to:
A) 58%
B) 50%
C) 33%
D) 55%
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
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wrote...
#1
6 years ago
D
Explanation:  D) Owner's equity = value - debt - new equity = 75 - 30 - 20 = $25 million
Total equity = owners equity + new equity = $25 + $20 = $45 million
Owner's stake =   = .555555 or 55.56%
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