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27) Miller Inc. Corp. is considering issuing $500 million of additional debt and using the proceeds to buy back some outstanding shares. Miller Inc.
27) Miller Inc. Corp. is considering issuing $500 million of additional debt and using the proceeds to buy back some outstanding shares.
Miller Inc. shares are currently trading at $45 per share and there are 30 million shares outstanding.
Miller Inc. also has $850 million of debt outstanding which is trading at par at a yield of 9.5%.
Analysts are forecasting that Miller Inc. shares will pay a dividend of $1.20 in one year and that the dividend will grow at 10% per year for the foreseeable future.
Miller Inc. has a corp. tax rate of 46%
a. What is the WACC assuming Miller Inc.’s current capital structure?
b. Find the value of the equivalent unlevered firm and the required return on unlevered assets.
c. Find the value of Miller Inc. if it undertakes the restructuring. Find the new value of the equity.
d. What is the new value of the shares and how many shares could be repurchased?
e. Find the WACC of Miller Inc. under the new capital structure.
