Question

# Richard is a zero growth company. It currently has zero debt and its earnings before interest...

Richard is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are \$85,000. Richard's current cost of equity is 11%, and its tax rate is 21%. The firm has 15,000 shares of common stock outstanding. Assume that Richard is considering changing from its original capital structure to a new capital structure with 39% debt and 61% equity. This results in a weighted average cost of capital equal to 8.7% and a new value of operations of \$576,345. Assume Richard raises \$165,000 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?

New value of operations = \$576,345

Debt = \$165,000

T-bills (excess cash) = \$165,000

Share outstanding = 15,000

Thus, Stock price per share prior repurchase:

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