In: Finance
Pennewell Publishing Inc. (PP)
Pennewell Publishing Inc. (PP) is a zero growth company. It
currently has...
Pennewell Publishing Inc. (PP)
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 25%. 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 9.125% and a new value
of operations of $657,534. Assume PP raises $230,137 in 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?
Remaining Shares; P Post