All-Equity Firm with 200,000 Shares Outstanding, Antwerther Inc

question 32

Multiple Choice

all-equity firm with 200,000 shares outstanding, Antwerther Inc., has $2,000,000 of EBIT, which is expected to remain constant in the future The company pays out all of its earnings, so earnings per share (EPS) equal dividends per shares (DPS) Its tax rate is 40%. The company is considering issuing $5,000,000 of 10.0% bonds and using the proceeds to repurchase stock The risk-free rate is 6.5%, the market risk premium is 5.0%, and the beta is currently 0.90, but the CFO believes beta would rise to 1.10 if the recapitalization occurs.
Assuming that the shares can be repurchased at the price that existed prior to the recapitalization, what would the price be following the recapitalization?

• A) $65.77
• B) $69.23
• C) $72.69
• D) $76.33
• E) $80.14

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Definitions:

Strict Rules

Firm and unyielding guidelines or standards set to control behavior, often leaving little room for flexibility or discretion.

Self-Esteem

The subjective evaluation or perception of one's own worth or value as a person.

Authoritarian Parents

Parents who adopt a strict disciplinary style with high demands and low responsiveness, often expecting obedience without question.

Permissive-Indulgent Parents

A parenting style characterized by high responsiveness and low demands, where parents are very involved with their children but set few rules and boundaries.