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Mayo Corporation is currently trading at $30 per share. There are 10 million shares outstanding, and the company has no debt. You believe that the value of the company would increase by 50% if the management were replaced. How much would you gain from acquiring 50% of Mayo's shares by borrowing, attaching the debt to the company and replacing the management

Respuesta :

jepessoa

Answer:

$150 million

Explanation:

there are 10 million shares outstanding and each share cost $30, so the total company's value = $30 x 10,000,000 = $300,000,000

if replacing the current management increases the value of the stocks by 50%, they would rise to $45 per stock and the company's value would increase to $450,000.

You need to borrow $150 million to buy 50% of the shares and by doing so, the company's value will increase to $450 million, which means a $150 million gain.