Assume That PP Is Considering Changing from Its Original Capital

question 56

Multiple Choice

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 9.4% and a new value of operations of $510,638.Assume PP raises $178,723 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?

• A)7,500; $71.49
• B)7,000; $59.57
• C)6,500; $51.06
• D)6,649; $53.33
• E)6,959; $58.78

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Definitions:

Price Reduction

The act of lowering the price of products or services to attract more customers or sell off excess inventory.

Online Movie Streaming

The practice of delivering movies over the Internet, allowing users to watch content without downloading it.

Target Return Profit

A pricing strategy where the price is set to achieve a desired return-on-investment (ROI) or specific profit goal above the cost of the product or service.

Profit Goal

A specific financial target for net income that a company aims to achieve within a certain period.