Use the information for the question(s) below.
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 $25 million in new debt,and you issue $25 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

A) Owner's equity = value - debt - new equity = 75 - 25 - 25 = $25 million
Total equity = owners equity + new equity = $25 + $25 = $50 million
Owner's stake = 11ea7e60_15e5_bfd8_ba34_1b3d88d693ae_TB1624_11 = .50 or 50.0%

Use the Information for the Question(s) Below