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?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

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:

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Richard Co. is a zero growth company. It currently has zero debt and its earnings before...
Richard Co. is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are $80,000. CSUSM 's current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. Refer to Exhibit 16.1. Assume that Richard Co. is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity.This...
Best Bagels, Inc. (BB) Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest...
Best Bagels, Inc. (BB) Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. BB's current cost of equity is 13%, and its tax rate is 40%. The firm has 20,000 shares of common stock outstanding selling at a price per share of $23.08. Refer to the data for Best Bagels, Inc. (BB). Now assume that BB is considering changing from its original capital structure to...
VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero...
VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT = $80,000 Growth = 0% Orig cost of equity, rs = 10.0% No. of shares = 10,000 Price per share = $60.00 Tax rate = 25% ​ Refer to the data for VanMannen Foundations, Inc. (VF). Now assume that VF is considering changing from its original zero debt capital structure to a new capital structure...
Pennewell Publishing Inc. (PP) Pennewell Publishing Inc. (PP) is a zero growth company. It currently has...
Pennewell Publishing Inc. (PP) 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 40%. 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...
Pennewell Publishing Inc. (PP) Pennewell Publishing Inc. (PP) is a zero growth company. It currently has...
Pennewell Publishing Inc. (PP) 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 40%. 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...
QUESTION 5 VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently...
QUESTION 5 VanMannen Foundations, Inc. (VF) VanMannen Foundations, Inc. (VF) is a zero-growth company that currently has zero debt, and it has the data shown below. EBIT = $80,000 Growth = 0% Orig cost of equity, rs = 10.0% No. of shares = 10,000 Price per share = $60.00 Tax rate = 25% ​ Refer to the data for VanMannen Foundations, Inc. (VF).  Now assume that VF is considering changing from its original zero debt capital structure to a new capital...
QUESTION 35 Pennewell Publishing Inc. (PP) Pennewell Publishing Inc. (PP) is a zero growth company. It...
QUESTION 35 Pennewell Publishing Inc. (PP) 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...
Powell Plastics, Inc. (PP) currently has zero debt. Its earnings before interest and taxes (EBIT) are...
Powell Plastics, Inc. (PP) currently has zero debt. Its earnings before interest and taxes (EBIT) are $80,000, and it is a zero growth company. PP’s current cost of equity is 10%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $48.00. PP is considering moving to a capital structure that is comprised of 30% debt and 70% equity, based on market values. The debt would have an...
Best Bagels, Inc. (BB) Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest...
Best Bagels, Inc. (BB) Best Bagels, Inc. (BB) currently has zero debt. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. BB's current cost of equity is 13%, and its tax rate is 40%. The firm has 20,000 shares of common stock outstanding selling at a price per share of $23.08. Refer to the data for Best Bagels, Inc. (BB). BB is considering moving to a capital structure that is comprised of 20%...
Best Bagels, Inc. (BB) currently has zero debt, an unleveraged firm. The firm has a total...
Best Bagels, Inc. (BB) currently has zero debt, an unleveraged firm. The firm has a total market value of $461,600. Management is considering recapitalizing by issuing enough debt so that the firm has a capital structure consisting of 30% debt and 70% equity, based on a market value at a before tax cost of 7%. Best Bagels will use the proceeds to repurchase stock at the new equilibrium market price. Its earnings before interest and taxes (EBIT) are $100,000, and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT