Tartan Industries currently has total capital equal to $4
million, has zero debt, is in the 40% federal-plus-state tax
bracket, has a net income of $2 million, and distributes 40% of its
earnings as dividends. Net income is expected to grow at a constant
rate of 6% per year, 190,000 shares of stock are outstanding, and
the current WACC is 12.80%.
The company is considering a recapitalization where it will
issue $1 million in debt and use the proceeds to...