Assume That VF Is Considering Changing from Its Original Zero

question 40

Multiple Choice

assume that VF is considering changing from its original zero debt capital structure to a new capital structure with even more debt.This results in changes in the cost of debt and equity, and thus to a new WACC and a new value of operations.Assume VF raises the amount of new debt indicated below and uses the funds to purchase and hold T-bills until it makes the stock repurchase.What is the stock price per share immediately after issuing the debt but prior to the repurchase?
EBIT =$80,000
New Debt/Value =20%
Growth =0%
New Equity/Value =80%
Orig cost of equity, rs =10.0%
No. of shares =10,000
New cost of equity = rs =11.0%
Price per share =$48.00
Tax rate =40%
Interest rate = rd =7.0%

• A)$50.67
• B)$53.33
• C)$56.00
• D)$58.80
• E)$61.74

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