Problem:
A company has been 100% equity owned but recently made changes to its capital structure. Here is the data:
- Issues $8,000,000 in new debt to buy back stock
- The firm had no short term investments before or after the recapitalization
- The firm had 1,000,000 in shares outstanding before the recapitalizaion
- The capital structure now has 20% debt
- The company operations are valued at $40 million after recapitalization
1. Stock price before the repurchase?
2. Number of shares repurchased?
3. Value of equity post repurchase?
Note: Explain all calculation and formulas.