Question

QUESTION 5

1. 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 with even more debt. This results in changes in the cost of debt and equity, and thus to a new WACC and a new value of operations. Assume VF raises the amount of new debt indicated below and uses the funds to purchase and hold T-bills until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?

   Debt/Value =	40%	Value of new debt =	$280,702
   Equity/Value =	60%	New WACC =	8.55%

   	a.	$73.68
   	b.	$77.37
   	c.	$70.18
   	d.	$81.24
   	e.	$66.67

Answer 1

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