Charleston Mills is an all-equity firm with a total market value of $221,000. The firm has 8,000 shares of stock outstanding. Management is considering issuing $50,000 of debt at an interest rate of 7 percent and using the proceeds on a stock repurchase. Ignore taxes. How many shares can the firm repurchase if it issues the debt securities?

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The firm can repurchase 1,810 shares if it issues the debt securities.The firm's total market value is $221,000 and it has 8,000 shares of stock outstanding. So, the current price per share is $221,000 / 8,000 = $27.63.The firm is considering issuing $50,000 of debt at an interest rate of 7 percent. So, the annual interest expense will be $50,000 * 7% = $3,500.The firm will use the proceeds from the debt issuance to repurchase shares. So, the number of shares that the firm can repurchase is $50,000 / $27.63 = 1,810 shares.

Charleston Mills Is an All-Equity Firm with a Total Market