Mercer Corp. is a equity firm with 10 million shares outstanding and $50 million worth of debt outstanding. Its current share price is $62. Mercer's equity cost of capital is 8.5%. Mercer has just announced that it will issue $301 million worth of debt. It will use the proceeds from this debt to pay off its existing debt, and use the remaining $251 million to pay an immediate dividend. Assume perfect capital markets.
Estimate Mercer's share price just after the recapitalization is announced, but before the transaction occurs.
Estimate Mercer's share price just after the recapitalization is announced, but before the transaction occurs.