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GB Corp. currently has no debt, and has a market value of $600,000 and 20,000 shares outstanding. Management is plannin...

  1. GB Corp. currently has no debt, and has a market value of $600,000 and 20,000 shares outstanding. Management is planning to issue $200,000 of debt at an interest rate of 10% to buy back shares. Ignoring taxes, how many shares will GB Corp be able to buy back with this amount of debt?
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Answer #1

Current market price = Market value / No. equity shares

Current market price = $600,000 / 20,000

Current market price = 30

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Number of shares bought back = Debt value / Current market price

Number of shares bought back = $200,000 / 30

Number of shares bought back = 6666.67

Therefore, the Number of shares bought back is 6667. Rounded nearest whole number.

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