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 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.PP then sells the T-bills and uses the proceeds to repurchase stock.How many shares remain after the repurchase, and what is the stock price per share immediately after the repurchase? Remaining Shares; P Post

A) 7,500; $86.18
B) 7,000; $74.26
C) 6,500; $65.75
D) 6,649; $63.48
E) 6,959; $58.03

Correct Answer:

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