Refer to Exhibit 15.1.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.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?

Question

Quizplus · Accepted Answer

First, find the stock price after issuing debt but prior to repurchase:
 11ea1b84_8bc9_4d8a_a54a_7fabc6ae6702_TB3581_00 
The price per share does not change in the repurchase, so the number of shares repurchased is equal to the amount used to repurchase shares divided by the price per share:
Number shares repurchased = $178, 723/$51.06 = 3, 500.Number shares remaining = 10, 000 - 3, 500 = 6, 500.As a check, the price per share after repurchase is:
 11ea1b84_8bc9_4d8b_a54a_b392993d5852_TB3581_00