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QUESTION 35 Pennewell Publishing Inc. (PP) Pennewell Publishing Inc. (PP) is a zero growth company. It...

QUESTION 35

  1. 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 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. What is the stock price per share immediately after issuing the debt but prior to the repurchase?

    a.

    $71.01
    b.

    $61.15
    c.

    $74.56
    d.

    $55.04
    e.

    $65.75
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