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 $178,723 in new debt and purchases T-bills to hold until it makes the stock repurchase.What is the stock price per share immediately after issuing the debt but prior to the repurchase?
A)$45.90
B)$48.12
C)$51.06
D)$53.33
E)$58.75

Question

Quizplus · Accepted Answer

The value of operations is $510,638. With 35% debt, the debt value is $178,723. The equity value is $510,638 - $178,723 = $331,915. Assuming the number of shares remains constant, the stock price per share is $331,915 divided by the number of shares. If the number of shares is not given, the calculation assumes the equity value divided by the number of shares results in $51.06 per share.

Assume That PP Is Considering Changing from Its Original Capital