The A J Croft Company (AJC) Currently Has $200,000 Market Value (And

question 46

Multiple Choice

The A. J. Croft Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company. AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00.
-Now assume that AJC is considering changing from its original capital structure to a new capital structure with 50% debt and 50% equity. If it makes this change, its resulting market value would be $820,000.
What would be its new stock price per share?

• A) $58
• B) $59
• C) $60
• D) $61
• E) $62

---

Definitions:

Community Court

A localized court system focused on addressing minor offenses through community service and restitution, promoting rehabilitation over punishment.

Mental Health Court

A specialized court docket for certain defendants with mental disorders, aimed at improving outcomes through therapy and support rather than incarceration.

Drug Court

A specialized court system that focuses on rehabilitating drug offenders instead of punishing them, using treatment and supervision programs.

Community-Based Treatment

A therapeutic approach that provides mental health, social, and educational services within a community setting rather than in-patient or institutional settings.