Part 1: Share Price Without Leverage

a. To find the share price without the increase in leverage, we can simply divide the value of the firm's assets by the number of shares outstanding.

• Value of assets = $50 billion
• Number of shares outstanding = 23.805 billion

The formula for the share price is:

$\text{Share Price} = \frac{\text{Value of Assets}}{\text{Number of Shares Outstanding}}$

Let's calculate that:

$\text{Share Price} = \frac{50}{23.805} = 2.10 \text{ (rounded to nearest cent)}$

So, without the increase in leverage, Rally's share price is $2.10.

Would you like me to continue with part b? Let me know if you want more details on any of the steps above.

5 Follow-up Questions:

1. What impact does leverage have on share price in general?
2. How does repurchasing shares typically affect a company’s financial metrics?
3. What are the benefits of maintaining permanent debt?
4. How does the corporate tax rate influence debt and equity decisions?
5. What might happen to stock prices if the repurchase offer is too low?

Tip:

A share repurchase can sometimes signal to investors that the company believes its stock is undervalued, which may result in a stock price increase after the repurchase.