(Solved): Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnin ...
Pennewell Publishing Inc. (PP) is a zero growth company. It currently has zero debt and its earnings before interest and taxes (EBIT) are
$80,000. PP's current cost of equity is
10%, and its tax rate is
40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of
$48.00. Refer to the data for Pennewell Publishing Inc. (PP). Assume that PP is considering changing from its original capital structure to a new capital structure with
35%debt and
65%equity. This results in a weighted average cost of capital equal to
9.4%and a new value of operations of
$510,638. Assume PP raises
$178,723in new debt and purchases T-bills to hold until it makes the stock repurchase. PP 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?
