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

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Definitions:

Mortality Rates

A measure of the number of deaths in a particular population, scaled to the size of that population, typically expressed as deaths per thousand or million.

Psychiatric Disorders

Mental health conditions characterized by alterations in thinking, mood, or behavior associated with distress or impaired functioning.

Binge/Purge Type

Refers to a pattern of disordered eating characterized by episodes of excessive food intake followed by compensatory behaviors like vomiting or excessive exercise.

Restricting Type

Refers to a subtype of anorexia nervosa where weight loss is achieved through dieting, fasting, or excessive exercise without engaging in binge eating or purging.