The Bethlehem Inn is an all-equity firm with 9,000 shares outstanding at a value per share of $26.80. The firm is issuing $39,932 of debt and using the proceeds to reduce the number of outstanding shares. How many shares of stock will be outstanding once the debt is issued?

Question

Business

Augie

30 October, 12:08

The Bethlehem Inn is an all-equity firm with 9,000 shares outstanding at a value per share of $26.80. The firm is issuing $39,932 of debt and using the proceeds to reduce the number of outstanding shares. How many shares of stock will be outstanding once the debt is issued?

+2

Answers (1)

Know the Answer?

Jaxson Sutton · Answer 1

Value of equity = 9,000 x $26.80 = $241,200

Value of debt issued = $39.932

Value of equity after debt repayment = $241,200 - $39,932

= $201,268

No of equity outstanding after debt repayment = $201,268

$26.80

= 7,510 shares

Explanation:

In this regard, there is need to determine the value of equity after debt repayment, which is value of equity minus value of debt repaid. Then, we will divide the value of equity after debt repayment by the value of equity per share. This gives the number of shares outstanding after debt repayment.