Multiple Choice
Exhibit 16.4
The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.
-Refer to Exhibit 16.4.Now assume that AJC is considering changing from its original capital structure to a new capital structure that results in a stock price of $64 per share.The resulting capital structure would have a $336,000 total market value of equity and a $504,000 market value of debt.How many shares would AJC repurchase in the recapitalization?
A) 4,250
B) 4,500
C) 4,750
D) 5,000
E) 5,250
Correct Answer:
Verified
Correct Answer:
Verified
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