Bird Houses is an all-equity firm with a total market value of $388,980 and18,000 shares of stock outstanding.Management is considering issuing $68,000 of debt at an interest rate of 6.5 percent and using the proceeds on a stock repurchase.Ignore taxes.How many shares will the firm repurchase if it issues the debt securities? (Round the number of shares repurchased down to the nearest whole share.)
A)3,167 shares
B)3,116 shares
C)3,021 shares
D)3,207 shares
E)3,146 shares

Question

Quizplus · Accepted Answer

The firm will use the $68,000 from the debt issuance to repurchase shares. The price per share is $388,980 / 18,000 = $21.61. The number of shares repurchased is $68,000 / $21.61 = 3,146 shares.

Bird Houses Is an All-Equity Firm with a Total Market