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Question: Baruk Industries has no cash and a debt obligation of $36 million that is now due. The market value of Baruk's assets is $81 million, and the firm has no other liabilities. Assume perfect capital markets.

a. Suppose Baruk has 10 million shares outstanding. What is Baruk's current share price?
b. How many new shares must Baruk issue to raise the capital needed to pay its debt obligation?
c. After repaying the debt, what will Baruk's share price be?

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Solution Summary

In a concise and step-wise response, this solution explains how to calculate the current share price and share price after repaying debt. All calculations are included.

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a. The current share price would reflect the market value of equity. Total value of assets is $81 million and the value of debt is $36 million.
Value of equity = Value ...

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