Merriwether Building Has Operating Income of $20 Million, a Tax

question 72

Multiple Choice

Merriwether Building has operating income of $20 million, a tax rate of 40%, and no debt.It pays out all of its net income as dividends and has a zero growth rate.The current stock price is $40 per share, and it has 2.5 million shares of stock outstanding.If it moves to a capital structure that has 40% debt and 60% equity (based on market values) , its investment bankers believe its weighted average cost of capital would be 10%.What would its stock price be if it changes to the new capital structure?

• A) $40
• B) $48
• C) $52
• D) $54
• E) $60

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Definitions:

Stressful Life Events

Experiences or situations that are perceived as threats to one's personal well-being and significantly challenge one's ability to cope.

Reactive Depression

A form of depression that is a direct response to a stressful or traumatic event in someone's life.

Psychologist's Office

A professional space where a psychologist conducts therapy sessions, assessments, and consultations to help individuals deal with mental health issues or personal challenges.

Endogenous Depression

A type of depression arising from internal physiological factors rather than external events or circumstances.