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(Solved): Mercer Corp. has 1010 million shares outstanding and $9191 million worth of debt outstanding. ...



Mercer Corp. has 1010 million shares outstanding and ​$9191 million worth of debt outstanding. Its current share price is $ 73$73. ​Mercer's equity cost of capital is 8.5 %8.5%. Mercer has just announced that it will issue ​$362362 million worth of debt. It will use the proceeds from this debt to pay off its existing​ debt, and use the remaining ​$271271 million to pay an immediate dividend. Assume perfect capital markets. a. Estimate​ Mercer's share price just after the recapitalization is​ announced, but before the transaction occurs. b. Estimate​ Mercer's share price at the conclusion of the transaction. ​(Hint​: Use the market value balance​ sheet.) c. Suppose​ Mercer's existing debt was​ risk-free with a 4.31 %4.31% expected​ return, and its new debt is risky with a 4.91 %4.91%expected return. Estimate​ Mercer's equity cost of capital after the transaction.



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