Use the Information for the Question(s)below

question 66

Multiple Choice

Use the information for the question(s) below.
Big Blue Banana (BBB) is a clothing retailer with a current share price of $10.00 and with 25 million shares outstanding.Suppose that Big Blue Banana announces plans to lower its corporate taxes by borrowing $100 million and using the proceeds to repurchase shares.
-Assuming perfect capital markets,the share price for BBB after this announcement is closest to:

• A)$11.40.
• B)$10.85.
• C)$10.00.
• D)$8.60.

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Definitions:

Purely Competitive

An idealized market structure in which there are many buyers and sellers, no barriers to entry or exit, and perfect information, leading to prices being determined by supply and demand.

Market Supply Curve

A graphical representation showing the total quantity of a good that sellers are willing and able to sell at various prices, holding all else constant.

Purely Competitive

A market structure characterized by a large number of small firms producing similar products, with easy entry and exit from the market, leading to price-taking behavior.

New Firms

New firms refer to businesses that have been recently established and are in the early stages of their operational life.