An all-equity business has 200 million shares outstanding selling for $30 a share.Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap).It will raise $750 million in debt and repurchase 25 million shares.a.What is the market value of the firm prior to the recap? What is the market value of equity?
b.Assuming the irrelevance proposition holds,what is the market value of the firm after the recap? What is the market value of equity?
c.Do equity shareholders appear to have gained or lost as a result of the recap? Please explain.

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The Answer of An all-equity business has 200 million shares outstanding selling for $30 a share.Management believes that interest rates are unreasonably low and decides to execute a leveraged recapitalization (a recap).It will raise $750 million in debt and repurchase 25 million shares.a.What is the market value of the firm prior to the recap? What is the market value of equity?
b.Assuming the irrelevance proposition holds,what is the market value of the firm after the recap? What is the market value of equity?
c.Do equity shareholders appear to have gained or lost as a result of the recap? Please explain.

An All-Equity Business Has 200 Million Shares Outstanding Selling for $30