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You own your own firm and you need to raise $50 million to fund an expansion.Following the expansion,your firm will be worth $75 million in its unlevered form.You want to go ahead with the expansion,but you are concerned that you may not be able to maintain ownership of over 50% of your firm's equity.In other words,you are concerned that if you use equity to finance the expansion,you may lose control of your firm.
-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:

Question

Quizplus · Accepted Answer

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 = 11ea7cce_3cd8_ce19_928c_3f08e06f0259_TB1626_11 = .555555 or 55.56%

Use the Information for the Question(s)below