Now Assume That BB Is Considering Changing from Its Original

question 15

Multiple Choice

Now assume that BB is considering changing from its original capital structure to a new capital structure with 45% debt and 55% equity. This results in a weighted average cost of capital equal to 10.4% and a new value of operations of $576,923. Assume BB raises $259,615 in new debt and purchases T-bills to hold until it makes the stock repurchase. BB 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) 11,001;
• $28)85
• B) 12,711;
• $35)62
• C) 13,901;
• $42)57
• D) 15,220;
• $54)31
• E) 17,105;
• $89)67
• (The following data apply to Problems 69, 70, 71, and 72. The problems MUST be kept together, and they cannot be changed algorithmically.)
• 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.

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