Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnings before interest and taxes (
EBIT) are $80,000. PP's current cost of equity is 10%, and its tax rate is 25%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00.
Refer to the data for Pennewell Publishing Inc. (PP). Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.125% and a new value of operations of $657,534. Assume PP raises $230,137 in new debt and purchases T-bills to hold until it makes the stock repurchase. PP then sells the T-bills and uses the proceeds to repurchase stock. How many shares remain after the repurchase, and what is the stock price per share immediately after the repurchase?
Remaining Shares; P Post
a. 7,000; $74.26
b. 6,500; $65.75
c. 7,500; $86.18
d. 6,959; $58.03
e. 6,649; $63.48
Refer to the data for Pennewell Publishing Inc. (PP). Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.125% and a new value of operations of $657,534. Assume PP raises $230,137 in new debt and purchases T-bills to hold until it makes the stock repurchase. PP then sells the T-bills and uses the proceeds to repurchase stock. How many shares remain after the repurchase, and what is the stock price per share immediately after the repurchase?
Remaining Shares; P Post
a. 7,000; $74.26
b. 6,500; $65.75
c. 7,500; $86.18
d. 6,959; $58.03
e. 6,649; $63.48
1 answer:
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