The Nantucket Nugget Is Unlevered and Is Valued at $640,000

question 40

Essay

The Nantucket Nugget is unlevered and is valued at $640,000. Nantucket is currently deciding whether including debt in their capital structure would increase their value. Under consideration is issuing $300,000 in new debt with an 8% interest rate. Nantucket would repurchase $300,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and their effective marginal tax bracket is zero. What is the change in value and how many shares of stock will be repurchased?

---

Definitions:

Practical Virtues

The attributes or characteristics deemed useful and beneficial in daily life for effective and ethical interaction.

Social Exclusion

The process by which individuals or groups are systematically blocked from accessing rights, opportunities, and resources that are normally available to members of society.

Psychological Effects

The impact of various factors on mental states and behaviors, including emotions, cognition, and social interactions.

Self-Esteem

An individual's overall subjective evaluation of their own worth and capabilities.