Use the Following Information to Answer the Question(s)below

question 83

Multiple Choice

Use the following information to answer the question(s) below.
d'Anconia Copper is an all-equity firm with 60 million shares outstanding,which are currently trading at $20 per share.Last month,d'Anconia announced that it will change its capital structure by issuing $300 million in debt.The $200 million raised by this issue,plus another $200 million in cash that d'Anconia already has,will be used to repurchase existing shares of stock.Assume that capital markets are perfect.
-The market capitalization of d'Anconia Copper before this transaction takes place is closest to:

• A)$800 million.
• B)$900 million.
• C)$1100 million.
• D)$1200 million.

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Definitions:

Cost of Capital

The minimum return that a company must earn on its investments to maintain its market value and satisfy its creditors and investors.

Firm's Value

The total worth of a company, determined by its financing structures, including equity and debt, and the present value of its expected future cash flows.

IRR Method

A financial analysis technique used to evaluate the desirability of investments or projects based on their internal rate of return, aiming to identify the profitability and potential return.

Time Value of Money

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.