Question

Galt Industries has 50 million shares outstanding and a market capitalization of $1.25 billion. It also has $750 million in debt outstanding. Galt Industries has decided to delever the firm by issuing new equity and completely repaying all the outstanding debt. Assume perfect capital markets.The number of shares that Galt must issue is closest to:A) 15 millionB) 25 millionC) 30 millionD) 40 million

Answer 1

Answer:

Market price per share = Total market capitalization

                                          No of shares outstanding

                                      = $1.25 billion

                                           $50 million

                                      = $25 per share

Number of shares to issue to repay debts

= Total value of debt

  Market price per share

= $750 million

    $25

= 30 million shares

Explanation:

In this case, we need to calculate the market price per share by dividing the total market capitalization by the number of shares outstanding.

Thereafter, we will derive the number of shares needed to repurchase debt by dividing the value of debt by the market price per share.