Answer:
b. 11,001; $28.85
Explanation:
EBIT $100,000
zero growth rate
Cost of equity (Re) 13%
tax rate 40%
20,000 common stocks outstanding at $23.08
they want to change from 100% equity to 45% debt and 55% equity
WACC = 10.4%
new value of operations $576,923
PP's value of operations = {$100,000 x (1 - 40%)} / WACC = $576,923
the new stock price should = $576,923 / 20,000 stocks = $28.84615
Stock price will be $28.846
approximately $259,615 / $28.846 = 8,999 stocks should be repurchased
number of stocks remaining after the repurchase = 20,000 - 8,999 = 11,001
total capitalization = $317,308 / 11,001 stocks = $28.84 ≈ $28.85 per stock
