Dabney Electronics Currently Has No Debt

question 14

Multiple Choice

Dabney Electronics currently has no debt. Its operating income is $20 million and its tax rate is 40 percent. It pays out all of its net income as dividends and has a zero growth rate. The current stock price is $40 per share, and it has 2.5 million shares of stock outstanding. If it moves to a capital structure that has 40 percent debt and 60 percent equity (based on market values) , its investment bankers believe its weighted average cost of capital would be 10 percent. What would its stock price be if it changes to the new capital structure?

• A) $40
• B) $48
• C) $52
• D) $54
• E) $60

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Definitions:

Recruitment Efforts

Strategies and activities undertaken by organizations to attract and hire suitable candidates for job vacancies.

Nursing Shortage

A global issue where the demand for nursing professionals exceeds the supply, impacting healthcare delivery and patient care.

Increased Pressure

A situation where there is a rise in the force, stress, or demands placed upon an individual, system, or organization.

Staffing Ratios

The proportion of staff members (usually in healthcare or education) to the population they serve, such as patients or students.